There has been no shortage of topics and tweets to discuss regarding the Canada-U.S. relationship and trade across the border over the last four years, as President Donald Trump sought to shake up the status quo to the United States’ advantage. This included applying tariffs to Canadian exports in the name of national security, and forcing the renegotiation of NAFTA, which resulted in the USMCA being implemented earlier this year.
On Monday, Prime Minister Justin Trudeau started the Canadian government’s transition to working with a Joe Biden administration by calling the Democrat nominee to offer congratulations. The Prime Minister’s Office said Trudeau was “the first international leader to speak with the President-elect.”
So if we lay the partisan hats to the side for now, and focus specifically on trade, what does a Biden administration mean for Canada, specifically Canadian agriculture?
Sure, Democrats have traditionally been more protectionist than Republicans, but the populist wave that carried Trump beyond 71 million votes heavily favours America-first policies as well, so Biden faces no pressure to move in the direction of more free trade. At the same time, he has more of a traditional view of the United States’ role in the world and in multilateral institutions, such as the World Trade Organization, so a Biden administration likely represents a move back, albeit not completely, to some pre-2016 American trade policies and positions.
At this point, there are still two large variables that will influence the Biden administration’s trade formula.
First, the Senate runoffs in Georgia will determine if the Republicans will hold a majority in the Senate. A Republican-controlled Senate would allow/force Biden to take a more centrist approach to running the trade football, with Republican Senate leader Mitch McConnell providing cover against the more extreme left views on trade in Biden’s own party, as well as clearing a path through the Senate. If the Republicans fail to win the Senate via the Georgia runoffs, Democrats would be in the clear to run a much more left-wing agenda.
The second variable: who will succeed Robert Lighthizer as U.S. Trade Representative, and what will their priorities be? (Some say Lighthizer himself should be a candidate.) Once again a Republican-controlled Senate could be a factor as the USTR appointee requires Senate approval.
Appointments and runoffs aside, Canada is heavily reliant on the U.S. market for exports, and a good trading relationship will be absolutely critical for helping the Canadian economy through the fallout of COVID-19.
And despite the friendly phone call on Monday and existing friendship between Biden and Trudeau, there are definitely no guarantees of an easier path for Canada on trade issues, especially with the pressure Biden faces to protect domestic jobs.
So here are some of the things we’re watching when it comes to Biden and trade:
- WTO dispute settlement — As an export-reliant economy, Canada relies on the WTO to hold other countries accountable to their trade commitments. It’s a last resort, but it was the WTO that told the U.S. to end mandatory country of origin labeling (mCOOL) on Canadian beef and pork. Canada currently has a file open at the WTO on China’s treatment of Canadian canola. The Trump administration, not happy with WTO dispute settlement rulings, crippled the WTO’s ability to resolve trade disagreements by refusing to appoint judges to the panel that rules on dispute appeals. A Biden administration will view the WTO more positively. There will still have to be some reforms to address American concerns that go back much further than Trump, but watch for Biden to at least move in the direction of re-engaging the WTO and reaffirming its role in enforcing rules-based trade.
- “Buy American” and country-of-origin labeling — There is still plenty of bi-partisan pressure in the U.S. to re-introduce mCOOL for beef and pork. With Biden heavily favouring “Buy America” policies, and COVID-19 boosting protectionist sentiment, especially in the area of food, it would not be surprising to see a renewed effort to implement mCOOL, which would once again disrupt and add costs to the integrated Canada-U.S. supply chains for beef and pork. Whether we’re talking meat or other products Canadians ship south, it will be in Canada’s interest to have the U.S. administration either exempt Canadian goods from “Buy American” rules or shift to a “Buy North American” policy.
- Ad hoc payments to U.S. farmers — Canadian farm groups have raised serious concerns about reduced competitiveness due to the Trump administration’s ad hoc payments to compensate for the market impacts of the trade war with China and COVID-19. It was no surprise most of the U.S. farm vote went to President Trump, so will Biden see value in continuing to offer direct payments?
- China — Many people in agriculture are concerned Biden will lift some of the pressure off of China, resulting in reduced purchases by the Chinese (and lower commodity prices), but Biden has also projected a tough stance on China throughout the campaign. He shares many of the same goals as Trump when it comes to China, so there doesn’t appear to be any strategic reason for him to concede ground in the battle between the two superpowers. Biden may place a higher priority on social and ethical matters in China, but that doesn’t necessarily mean he’ll back off on economic issues.
- New alliances — Another area where Biden’s approach to China could differ — to Canada’s benefit — is that he appears quite willing to form alliances with allies, such as Canada, Australia, and South Korea, to specifically counter China’s influence. Those are all countries that happen to be in the Trans-Pacific Partnership (TPP), which was largely driven by the Obama administration. Carlo Dade with the Canada West Foundation told CBC the language around the TPP is too “poisonous” for U.S. lawmakers, but rejoining Pacific pact would be in line with an effort to build a coalition to counter China. TPP aside, the Canadian government has been desperately seeking allies to put pressure on China, but the Trump administration was reluctant. By working together, it’s possible countries like Canada could move ahead with stronger actions against China without having to handle the burden of retribution individually. Among the topics Trudeau and Biden discussed on Monday was China’s continued captivity of the two Canadian Michaels — Kovrig and Spavor. Will Biden be willing to flex the U.S. muscles to help free the Canadian hostages?
- Carbon border adjustments — Biden is in favour of implementing carbon “border adjustments” or tariffs on imports produced without a satisfactory tax on carbon emissions. In theory, these tariffs level the playing field for domestic products that face carbon taxes and eliminate the competitive advantage for imports from countries that don’t tax emissions to the same extent. Economists often refer to products such as steel and cement when discussing carbon border adjustments, but there are possible implications for agriculture, especially if Canada’s largest market adopts this policy. Will countries start using these as an artificial trade barrier? On the positive side, is there a possible advantage for Canadian canola or beef to be rated favourably from an emissions perspective compared to a competitor’s product? The Canadian government has been bandying about the idea of implementing its own carbon border adjustments over the last few months. This would have been nearly impossible to do with a Trump administration, but a Biden presidency will likely clear the path for Canada to also move in this direction. In general, Biden’s focus on climate change-related policies, including rejoining the Paris Accord, raises the question of whether Trudeau and his team will view U.S. moves in this direction as inspiration or an opportunity to push more aggressive climate policies in Canada.
- Keystone pipeline approval — This is the big one for the Canadian government. Foreign affairs minister Francois-Phillipe Champagne has already noted that having Biden reconsider his position to cancel Keystone XL is “top of the agenda” as the Canadian and Albertan governments are banking on the prospective revenue from the pipeline.
As with most close neighbours, it’s normal to have some irritants to work on. This list could also include the chronic softwood lumber dispute, Canada’s variety registration system for wheat, and some early quarrels over details in the implementation of the USMCA.
Overall, a Biden administration likely means a return to more traditional and predictable U.S. trade policy. Canadian officials will probably sleep easier at night no longer feeling the need to check the president’s Twitter feed, but there are still plenty of issues on the Canada-U.S. trade front that will need attention over the next four years.