When Donald Trump became the President of the United States and decided to open NAFTA trade talks, Canada was understandably concerned.\u00a0 President Trump\u2019s talk of trade deficits and threats of tariffs on countries all around the world made headlines and informed Canada that the United States would be looking after its\u2019 own interests.\u00a0 It was clear that NAFTA talks were being opened to address President Trump\u2019s assertion that the United States was being unfairly taken advantage of.<\/p>\n
While it is clear that the United States has a trade deficit with Mexico, it is not clear that the United States has a trade deficit with Canada.\u00a0 From Canada\u2019s perspective, the United States has a trade surplus with Canada and from the United States perspective, there is a trade deficit.\u00a0 Depending on your accounting methodology, it seems that both countries may be correct in their claims.\u00a0 Following the trade surplus\/deficit banter which is still ongoing, President Trump made clear his preference for bilateral trade deals with Canada and Mexico.<\/p>\n
Canada and Mexico, however, firmly believed that any renegotiation of NAFTA should be a trilateral agreement.\u00a0 The rationale may have very well been that there is strength in numbers when negotiating against a country with much larger markets and that the combined markets of Canada and Mexico would help to balance the negotiating positions of the United States and a combined Canada and Mexico.\u00a0 A trilateral agreement would also reaffirm a North American trade zone comprising of the United States, Canada, and Mexico.\u00a0 In addition, Canada would benefit by not having to negotiate a separate free trade agreement with Mexico and perhaps most important, both Canada and Mexico would be more likely to get the same best deal with the United States in a trilateral agreement.<\/p>\n
The reality is that the benefits of a trilateral agreement are overstated.\u00a0 I believe that Canada\u2019s negotiating position is actually strengthened when it negotiates one on one with the United States.\u00a0 There is an enduring US-Canadian friendship that can be leaned on when negotiating one on one.\u00a0 There are specific aspects of the US-Canadian relationship that are unique to the two countries.\u00a0 By pushing for a trilateral agreement, it is difficult for Canada to say, \u201cOur relationship is different from any other,\u201d as Mexico would be a party to the trade relationship being re-established.<\/p>\n
With respect to the benefit of not negotiating a separate deal with Mexico, the final NAFTA draft will very likely look like three bilateral agreements put into one.\u00a0 This is similar to the three for one deals you get when ordering pizza.\u00a0 You only need one pizza, but for a little bit more, you now have leftovers and some additional choice on that second and third pizza.\u00a0 A North American trade zone is an \u201cadditional choice\u201d as the relative percentage of trading Canada does as an intermediary is likely to be small compared to the percentage of direct trade, but that choice also comes at an additional cost.\u00a0 Also, it is the wording in the agreement that establishes a viable trade zone, and not the structure of the agreement.<\/p>\n
A trilateral trade agreement optically looks better than two bilateral trade agreements, but at what cost.\u00a0 Canada will not have a first mover advantage in free trade with the United States, has expended goodwill, and really cannot utilize their friendship with the United States in NAFTA negotiations because Canada has thrown its\u2019 lot in with Mexico, where President Trump wants to put up a border wall and make Mexico pay for it.\u00a0 I would not be surprised to see the border wall payment provisions show up in the new NAFTA and wonder what if Canada did not have to deal with these types of issues when negotiating trade with the United States.<\/p>\n
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When Donald Trump became the President of the United States and decided to open NAFTA trade talks, Canada was understandably concerned.\u00a0 President Trump\u2019s talk of trade deficits and threats of tariffs on countries all around the world made headlines and informed Canada that the United States would be looking after its\u2019 own interests.\u00a0 It was … <\/p>\n