The U.S. sees Canada in 3Ds, and that’s not good

As published in the Financial Post

Having been to the United States several times in recent months, I’ve been reminded that American officials don’t look at us in Canada through rose-coloured glasses. Metaphorically speaking, they look at us through those old, disposable cardboard-and-plastic 3D-glasses with one red (Republican) lens and one blue (Democratic) lens.

There are very few things Republicans and Democrats see eye-to-eye on these days so we should take note when there’s an emerging bipartisan consensus about Canada. When U.S. officials look at Canada through both red and blue lenses, three “Ds” pop out at them: dairy imports, digital taxes and defence spending.

These three “Ds” pose a particular risk to the Canada-U.S. relationship because, in each case, the White House and Congress believe Canada isn’t following through on commitments we’ve made to them. Whatever our own understanding of Canadian policies in these areas, to the Americans it looks like we’re going back on our word.

On dairy, which came up during Prime Minister Trudeau’s meeting with Speaker Nancy Pelosi at the Summit of the Americas in Los Angeles, the U.S. has requested a second round of dispute-settlement consultations, arguing Canadian restrictions contravene commitments we made in the Canada-United States-Mexico Agreement (CUSMA).

The issue concerning Canada’s digital services tax is similar. U.S. Trade Representative Katherine Tai believes Canada’s plan for a unilateral digital services tax could both violate CUSMA and undermine an historic initiative by Canada, the U.S. and 135 other countries to implement a global minimum corporate tax.

The OECD has now publicly confirmed those negotiations are taking longer than planned, meaning implementation of any resulting global tax has been pushed back by at least a year. Canada is not to blame for this but the fact we’re still planning to go ahead with our own tax will only further rankle many in the United States.

The irritants go beyond trade and taxation, however. Despite a welcome increase in defence spending in April’s federal budget, U.S. officials continue to note Canada is still short of our NATO commitment to invest the equivalent of two per cent of GDP in defence. U.S. Ambassador David Cohen has publicly pointed to a recent PBO report saying we won’t do so in the next five years.

Taken together, these issues could have serious consequences for our future economic security. When NAFTA evolved into CUSMA, it gained a new feature — a review clause — that allows the U.S. to walk away from the agreement come 2026. Not knowing who will then be in the White House, that’s too great a risk to ignore.

Moreover, these issues make it harder to challenge the U.S. on its own policies — such as potential tax credits for electric vehicles (EVs), “Buy America” procurement provisions and softwood lumber tariffs — let alone propose new joint undertakings to improve the lives and livelihoods of Canadians and Americans. We keep running into the same three walls.

We need to change perceptions in Washington on each of these three “D” issues and rebuild trust. That doesn’t mean buckling under pressure when we need to assert our sovereignty, just living up to our commitments and reminding our American allies there are more than three dimensions to our unrivalled cross-border partnership.

A great time and place to start would be the upcoming CUSMA Free Trade Commission meetings in Vancouver. The FTC will bring together cabinet-level officials from Canada, the U.S. and Mexico to assess how the agreement is working and ascertain how it could work better. It’s a crucial milestone on the road to the 2026 review.

The FTC meetings will be USTR Ambassador Tai’s second visit to Canada in just over two months. Canada should welcome her with new proposals for how we could address one or more of the ongoing 3D disconnects. If she reports back to Washington that Canada has made a good-faith attempt, it will help to defuse a dangerous situation.

But if Canada is seen as ignoring American concerns, that could be seized on by those seeking to stoke protectionist sentiment in November’s U.S. midterm elections. The last thing Canada needs is for the next Congress to be composed of senators and representatives who campaigned successfully against continental free trade.

To be clear, it is essential for Canada that CUSMA not only is a success but is seen as a success in the United States. To that end, it is decidedly in Canada’s national interest that we are viewed as a resilient, reliable partner that honours its commitments. That is the image we want to pop out at Americans when they look at us.