Markets are starting to seem a bit warier of the China-U.S. standoff as the third round of tariffs was announced by each side. The sector and communities that would normally back the Trump reinvention and circumvention of the normal have not been shy about disagreeing with the president on his approach to trade. Farmers, for example, who mostly stood by the pullout from the TPP, are worried about losing hard-won market share for products like soybeans or wheat. Thus, the U.S. administration has been desirous of a trade win for a while, but the likeliest candidate thus far, an updated NAFTA, keeps missing its cues and is now seemingly ignoring its call to the stage.
After earlier trilateral progress proved elusive, the White House pursed a “divide and conquer” strategy by first settling disagreements with Mexico. Faced with that fait accompli—and Trump’s seeming embrace of a strongman-cum-madman theory for trade relations—the assumption had been that Canada would be quick to toe the line. What derailed that plan? If you went by White House tweets, you would think Canadian dairy protectionism the chief point of contention. What Canada is saying, however, is far different: the Trudeau administration’s focus is on wider—and wonkier—concerns, chiefly the issue of changes to rules governing dispute arbitration.
Both by happenstance and by choice, Trudeau has been cast as one of the defenders of the traditional international order, the sophisticate cast against Trump’s bravado. Their interactions have been superficially amiable at best, bumptious at worst. Canada, therefore, sees issues like arbitration and the original U.S. proposal for a NAFTA sunset clause both in terms of their immediate impact and as symbolic of the previously amicable North American order. (Significant U.S. interests, too, want to keep the arbitration system largely intact.)
Similarly, Canada sees the Trump’s use of his authority to set tariffs based on national security concerns as both offensive—casting a traditional ally as a near enemy—and as a greater economic threat. Philosophically, Canada is opposed to what it views as a cynical use of a loophole by the U.S.; that its neighbor and ally picked Canada as its target is further fodder for righteous outrage. That this fight is now within the WTO’s ambit is one more reason why it is has gained greater import to believers in a system that the Trump administration has arguably vigorously sought to upend and disrupt.
There may thus be hope for backchannel U.S.-Canada trade discussions in NY this week during, but the symbolic and practical weight of the issues make a resolution unlikely—unless the White House makes significant concessions, as it did by accepting a watered-down sunset clause in its negotiations with Mexico. There is now a narrow window left before Mexico’s new president is inaugurated, and the conventional wisdom has been that president-elect Lopez Obrador had hoped to wash his hands of the new NAFTA as the work of the embattled Peña Nieto (PRI) administration. The Trump administration has floated the idea of bilateral agreements to circumvent the NAFTA—the U.S. and Mexico did sign a side letter addressing part of their auto trade—but neither Mexico nor Canada seem willing to give up on the trilateral approach. Lopez Obrador, instead, choose to state that Mexico would seek to negotiate a bilateral agreement with Canada in the absence of NAFTA. Meanwhile, the NAFTA deadlines keep flying by—making a “whooshing sound,” to quote Douglas Adams, where Ross Perot once heard “a giant sucking sound”—as the next notional deadline, Sep. 30, approaches.
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