Staying calm under threat of a trade war

by Sarah Goldfeder

June 5, 2017

About that ‘charm offensive’ … Beginning in Wisconsin weeks ago, the Trump administration fired a series of shots across the bow at Canada. Starting with complaints on dairy, leading into softwood lumber, and then launching a full frontal assault on the North American Free Trade Agreement (NAFTA), President Donald Trump seemingly misplaced the brief on Canada.

It seems like forever since Trump advisor Stephen Schwarzman met with the Canadian cabinet and reassured them that “trade between the U.S. and Canada is really very much in balance and is a model for the way that trade relations should be.”

Things started out okay. The feedback from the government’s outreach was that the Americans got it — they understood that the relationship with Canada is unique, that Canada-U.S. trade is mostly balanced and responsible for jobs and economic growth throughout the United States.

Then came Wisconsin.

It’s hard to say why the tide changed so quickly. One minute Canadian ministers were meeting with their counterparts in Washington, everyone was saying all the right things — and then, boom.

To be clear, it’s easy to think that the timing of the verbal attacks on Canadian dairy policy and the announcement of the countervailing duties against softwood were designed as a one-two punch, not coincidence.

The national ingredient strategy and the rollout of the new class 7 national milk category created barriers to American farmers selling into the Canadian market. Governors and congressional delegations have railed against these changes since before last summer, when rumours of their imminent arrival started.

The countervailing duties decision was not a surprise. It likely would not have been different had another candidate been elected president. While an irritant in the relationship, softwood lumber is not a domestic political issue for Americans. The duties were decided based on industry’s complaint — while the general rate is 19.88 per cent, the rates specific to companies range from three per cent to 24 per cent. This is what the U.S. industry sees as a fair solution.

Then British Columbia entered the fray with its proposal on coal exports, and the trade team painted a target on pretty much anything produced in Senator Ron Wyden’s home state of Oregon. This is how a trade war starts. Mexico is doing the same thing with corn and is engaging in a pitched battle over cane sugar, fructose and corn syrup. No one is playing nice.

But this is how trade works — through agreements that sacrifice certain interests in exchange for access to new markets. Domestic policies that protect those markets must be managed to meet sovereign interests while finding a compromise to meet the objectives of free trade.

There may be multiple feuding power centres within the first and second concentric circles around the president as a prevailing management style sets them against each other in a zero-sum I win — you lose dichotomy. However, at the end of the day, national interest will prevail. New Secretary of Agriculture Sonny Perdue appears to be the emergent keeper of that national interest. Widely credited (at least in Washington) as the man responsible for changing Trump’s mind on invoking Article 2205 and withdrawing from NAFTA, Perdue speaks for the farmers — who depend on the export markets available to them through NAFTA, and who voted for Trump.

So where does Canada head from here? To be fair, the on-again-off-again threats from the south are a little unnerving to all, but the Trudeau team has so far held true to its course: Don’t unnecessarily throw shade on the U.S. administration, play the long game, and continue to educate the local, state and federal stakeholders and lawmakers in the U.S. about how Canada matters to them.

Of course, the third part of this equation is Mexico. It’s fair to say that Team Trudeau has gotten the message that Mexico matters. We all need to remember that while the U.S. administration might be the largest and loudest of the three NAFTA partners, when the negotiating teams sit down to work, they will need to work together as equals.

Sarah Goldfeder is a Principal at the Earnscliffe Strategy Group in Ottawa, where she provides high-level insight on the inner workings of the U.S. and Canadian governments. With 15 years of experience in the U.S. federal government, Sarah most recently served as special assistant to two U.S. ambassadors to Canada.

Image credit: AP Photo/Carolyn Kaster

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