How Canada will get along with the Trump reality

TORONTO — Put aside your preconceptions about NAFTA for just a moment. And your assumptions about Canada, too. Look across the border and you’ll find that the Canadians want to renegotiate the North American Free Trade Agreement also.

Sure, Canada is skeptical of, if not downright hostile to, Donald J. Trump, who triggered a bitter belligerence in nearly every conversation here in the days following his election to the White House. But there’s nothing more important to this country than its trade with the United States, which accounts for an exchange of $1.6 million in goods and services every minute — or more than $670 billion in 2015. Canada is the biggest trading partner the United States has, bigger even than all 28 countries in the European Union.

“This is the most important two-way trade in the world,” said David Wright, former Canadian representative to NATO. “We believe free trade ends up benefiting all participants. And though Trump probably didn’t have Canada in mind when he said all those things about NAFTA, the deal is 20 years old. There are some things that should be upgraded and updated.”

Indeed, Canada — unusually dependent on trade, which accounts for 60 percent of its gross domestic product, most of it with the United States — has grievances, too. And it has a trade safety net Trump may not have considered. If he moves to shelve NAFTA, Canada will simply fall back on an agreement long forgotten below the 49th parallel but top of mind above it: the Canada-United States Free Trade Agreement (FTA) of 1987, which eliminated tariffs, swept away other trade barriers and implemented a pathfinding mechanism to resolve trade disputes swiftly.

“We know that Canada wants free trade in North America,” said Jeremy K.B. Kinsman, a veteran top diplomat who was Canada’s ambassador to London, Moscow and the European Union, and is a member of Prime Minister Justin Trudeau’s Foreign Affairs Council. “It’s essential for Canada, but Canada knows it has the FTA in its back pocket if NAFTA becomes toxic.”

Indeed, there are elements of the 1994 NAFTA agreement that Canada finds toxic as well, especially issues revolving around softwood lumber, a matter of contention for three decades but understood only by a handful of Washington and Ottawa lobbyists who have made a fortune in this longstanding, arcane dispute. This issue, which grows out of Canadian provincial ownership of timberland that the United States considers a form of subsidy, was the first topic that David MacNaughton, the Canadian ambassador to Washington, mentioned in his conversation with reporters shortly after the election.

But if Canada presses on lumber, the United States would likely press on dairy, auto and intellectual property matters. It will not help that Trump and his circle believe Trudeau was an ardent supporter of former Secretary of State Hillary Clinton and had an open line to her campaign manager, John Podesta. But Canadian officials rushed after the election to emphasize that they have had what MacNaughton described as “many discussions with people involved in the Trump campaign and in the transition already.”

Trump is close to Conrad Black, the media mogul, and to former Prime Minister Brian Mulroney, but otherwise is known to have few connections here. The 65-story Trump International Hotel and Tower on Bay Street, the Canadian equivalent of Wall Street, boasts “an American restaurant” but has been the center of financial and cultural controversy, with a Toronto city councillor this year petitioning to rename the building following Trump’s comments on banning Muslims from entering the United States.

While retaining the contours of NAFTA is a matter of controversy in the United States, it is a matter of conviction here.

“For us Mexico is not a big deal,” said Bob Rae, the former premier of Ontario, the country’s biggest province. “Where it’s important for Canada is that NAFTA overall is positive, and since we have no animus toward Mexico, there is no rush here to get rid of it. My concern is that opening up NAFTA will invite even more America-first protectionism that could hurt Canada.”

In truth, American trade with Canada is in almost perfect balance — an exceedingly unusual phenomenon. In 2015, the United States exported goods and services valued at $338 billion to Canada, while Canada exported $332 billion to the United States. That is a stark contrast to American trade with Mexico, which sent $58 billion more in goods and services across the border than the United States shipped south.

“Canadian diplomats are very pragmatic,” said Gary Clyde Hufbauer, trade analyst at the Peterson Institute for International Economics, a nonpartisan think tank in Washington. “They know Canada was not in anybody’s crosshairs.”

Overall Trump has enormous leverage on trade. He can apply tariffs on individual products and can impose quotas.

“Think of the president’s power as commander in chief,” said Hufbauer, a former Treasury Department official who held an endowed chair in international financial diplomacy at Georgetown University. “He has commensurate power in restricting trade on everything, and I mean everything: commerce, financial flows, even data flows and investment by foreign firms. There’s a lot he can do, and he doesn’t need Congress for any of it.”

That is what worries diplomats, business executives and economists here. Nearly three out of five Trump voters said they believed international trade robs the United States of jobs, according to exit polls. The Canadian government argues that nearly 9 million American jobs depend on trade and investment north of the border, and that since the original free-trade agreement took effect in 1989, Canada’s two-way trade with the United States more than tripled, reaching a level of $2.4 billion in goods and services every day last year.

That 1987 free-trade agreement that is Canada’s new trade safety net was not without controversy when it was implemented. The initial impact here was lost jobs and corporate consolidation, but today diplomats and economists embrace it as an important first step in larger trade liberalization.

“Most people,” former Ontario premier Rae said, “agree the long-term impact has been favorable, especially because it opened the huge American market.”

Only two weeks ago Canada went a step further, signing the Comprehensive Economic and Trade Agreement, a groundbreaking trade agreement with the European Union. Even so, Canada’s eyes, skeptical perhaps but open, look south.

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David M. Shribman is executive editor of the Post-Gazette ([email protected], 412 263-1890). Follow him on Twitter at ShribmanPG.