It has been an immensely fast-paced day in regards to NAFTA 2.0 talks.
Monday began with Mexico and the United States agreeing to a bilateral trade deal that was described as an “understanding.” U.S. President Donald Trump alluded to the fact that NAFTA had a very negative meaning for Americans so he would be giving this deal a new “elegant” name “the U.S and Mexico Trade Deal.” (USMEXTD?)
The rest of the day was composed of speculation, analysis, and, in some cases, panic regarding what happens next. Let’s dive a bit deeper and break it down into easier pieces to chew on.
What we know
- Canada has not been involved in the talks officially at all during this five week period but has been talking to Mexico and the U.S. throughout this bilateral period. The relationship of the President with Canada eroded after the G7 based on comments by Prime Minister Justin Trudeau and the acceptance speech by Chrystia Freeland when she won the Diplomat of the Year.
- Mexico and the U.S. have agreed to solutions for their bilateral issues and also some trilateral issues without Canada present. Examples include the five year sunset clause and dispute resolution.
- Mexico’s outgoing president Pena Nieto is clearly very motivated to have the deal in place before President Obrador takes office on December 1st. According to the first releases of the chapter texts, there are questions as to why Mexico caved on prior non-starters like dispute resolution and the sunset clause. Mexico even caved on lifting restrictions of certain cheeses which it had previously agreed to do under its agreement with the EU.
- Trade writers and analysts are very critical of what has been negotiated in the U.S./Mexico bilateral. Some feel this is a move to managed trade instead of allowing the market to function properly.
- Canada has until September 1st to negotiate their bilateral issues, which is extremely tight. This has created a “take it or leave it” narrative. In Monday’s press conference, President Trump stated that Canada can accept this deal or the U..S will apply 25% automobile tariffs.
- President Trump also stated Monday that negotiating with Canada would be “smaller” because Mexico is a much bigger trading partner. Daniel Dale of the Toronto Star pointed out via Twitter that the Canada/U.S. trading relationship is $50 billion more than U.S./Mexico.
Trump is now going to play hardball with Canada. However, our competent and highly experienced team of trade negotiators knew this all along. Trade negotiations are always toughest just before a deal is reached. 3/4 #NAFTA #cdnpoli
— John Baird (@Baird) August 27, 2018
- It is unclear how much room is left for Canada to negotiate now that the U.S. and Mexico have apparently reached an agreement that includes trilateral issues.
- Clearly the 300% tariff on U.S. dairy exports into Canada (above allowable imports) are still a talking point for President Trump. Canada will have to gauge what will rectify this irritant for the President. Over the weekend Colin Peterson (MIN-D) stated in an interview with Agri-Pulse, “there was never any chance that Canada would give up supply management. There is a lot of politics being played here.”
- The Mexican election on July 1st was supposed to be a problem for the U.S. but it looks to of turned the tables for the Canadian strategy. Did Mexico turn its back on Canada? Time will tell.
- Pundits of all political stripes are having a hard time figuring out the political theater premium of today/s deal. Will President Trump really withdraw from NAFTA and go with just a deal with Mexico or is this just another negotiating tactic?
So if Canada doesn’t get on board this week, we face the prospect of a bilateral U.S.-Mexico trade agreement, and Canada & the U.S. revert back to CUSFTA. Canada also is likely to continue to face steel and aluminum tariffs for not signing on to the deal.
— Inu Manak (@inumanak) August 27, 2018
- Foreign Affairs Minister Chrystia Freeland will cut her European trade trip short to be in Washington on Tuesday to renew negotiations with the U.S. Canada has little time, but has been aware of this scenario for some time.
- The Dairy Farmers of Canada will no doubt be in full throttle lobby mode to ensure its interests are protected, although many dairy farmers I talk to realize that there will some form of compromise. Watch closely this week for signs on how big of a compromise is indicated by the U.S.
- This deal has been about the auto sector all the way and that is not likely to change. The Liberals cannot afford a loss of NAFTA in Ontario with the 2019 election so close.
- U.S. members of Congress will chew through the bilateral deal text to establish a position. Northern state lawmakers and governors will have strong opinions of a potential NAFTA 2.0 deal without Canada.
- The U.S president was given authorization by congress to renegotiate NAFTA which is a trilateral. President Trump now believes that he has a bilateral deal with Mexico which is not NAFTA. Trump’s strong arm move is to withdraw from NAFTA and put the new US / Mexico deal in front of Congress to be voted on. This forces congress to decide on whether a “a bird in the hand is worth two in the bush.”
Canada will probably spend all of its negotiating capital this week trying to keep Chapter 19, which Mexico has apparently agreed to scrap, nevermind trying to defend on any of the other things it won’t like in the U.S.-Mexico deal
— Adrian Morrow (@AdrianMorrow) August 27, 2018
The bottom line
Although it looks like the big stand off will be Canada versus the U.S., the political drama between President Trump and Congress could be even more of a standoff. It is interesting that Canada started this whole NAFTA 2.0 negotiation by lobbying congress and in 13 months we have come full circle back to Canada relying on Congress to keep the trilateral afloat.
Canada has more friends in Congress than Donald Trump
– David Frum, Editor of the Atlantic –