Continental Free Trade is not dead

As published on LinkedIn

Continental Free Trade is not dead. To paraphrase Mark Twain, the rumours of its death have been greatly, and irresponsibly, exaggerated by the Globe & Mail’s weekend editorial. Having recently been in Washington with a delegation of business leaders and having been in regular contact with officials in both Canada and Mexico, I feel compelled to rebut the Globe’s bitter obituary.  

President Trump’s tariff threats have heightened uncertainty in the U.S.-Canada economic partnership in his first four weeks in office. There is an obvious distinction to be made between observing that reality and stating an assumption as though it is a certainty.  The Globe’s editorial goes too far in saying that Canada, the U.S. and Mexico have an economic relationship that’s been fatally severed. 

First, there are three countries in North America and the commitment to continental free trade is as strong as ever in two of them – Canada and Mexico. In recent months, Canadian business leaders have met with Mexican President Claudia Sheinbaum, Economia Secretary Marcelo Ebrard, and Trade Undersecretary Luis Rosendo Gutierrez. All are ardent continental free traders. 

Here in Canada, business leaders are firmly committed to the successful review of the Canada-U.S.-Mexico Agreement (CUSMA) and have been working diligently over the past several years to ensure it happens. Canadian companies have and continue to invest in integrated supply and value chains as well as trade infrastructure networks across all three countries. 

Contrary to what has been expressed by others, our business community is specifically supportive of continental free trade enshrined in a trilateral agreement. We do not want to see the three-country CUSMA torn up only for us to try to negotiate separate one-on-one free trade agreements with the United States and Mexico. That is the absolute worst-case scenario. 

Second, in none of the meetings we’ve had in Washington – whether with Senators and Congressmen, Republicans and Democrats, or Administration officials both career public servants and political appointees – has anyone suggested President Donald Trump wants to terminate the CUSMA. This is not the North America Free Trade Agreement. 

When Trump nominated his new Ambassador to Canada, Pete Hoekstra, he wrote on Truth Social: “I overhauled the disastrous NAFTA Agreement, the worst Trade Deal in the History of the United States, which was switched to the USMCA (Mexico/Canada)…We brought trade with Mexico and Canada to a level playing field for our wonderful Farmers and Working Families.” 

In all our discussions with U.S. officials we heard repeatedly that this reflects Trump’s view of the CUSMA – it’s one of the signature achievements of his first term. That’s not to say he doesn’t see areas where it can be strengthened – but the same can be said for Canada and Mexico. That is why there is a review clause; it’s not a “weapon” but a pressure release valve. 

We know the incoming U.S. Trade Representative, Jamieson Greer, and his officials are planning to immediately begin work on the CUSMA review process set out under U.S. law and the terms of the Agreement as soon as he is confirmed and takes of office. Canadian officials and business leaders can and will participate in those formal proceedings. 

The Globe editorial suggests Trump will “threaten to scrap the pact” unless we agree to certain demands – adding, “there is no way to know” what those demands will be. In truth, the demands have been clear to business leaders for some time – changes to digital policies including the digital services tax, dairy quota allocation, and redefining rules of origin. 

This last issue speaks directly to Trump’s desire to reindustrialize the U.S. manufacturing base. If he has an issue with the CUSMA, as explained by former U.S. Trade Representative Ambassador Robert Lighthizer, it is that the CUSMA as signed doesn’t do enough to prevent the transshipment of certain imported goods, including specified manufacturing inputs, from China. 

Third, to date the Trump Administration has threatened a mix of blanket and sector-specific tariffs on many countries but as of this writing he has only applied a 10 per cent tariff on China. And yet, Canada has been far more vocal in its response than most. Mexico, for example, has been the model of measured restraint to arguably much greater effect. 

In Washington we were reminded that not everything is about Canada, and we should stop acting as though it is. Trump is reassessing all of America’s global trade relationships with the goal of reducing trade deficits and its reliance on overseas markets for strategic inputs. Killing CUSMA would only exacerbate both, so Trump won’t go there unless Canada does. 

It’s therefore not in Canada’s economic interests for the Globe to call in the coroner on continental free trade. Doing so only plays into the hands of those who want to create uncertainty to divert business investment away from Canada to the United States. It also makes it more difficult for our negotiators to reach past the rhetoric to review and renew a deal we need.