Young Trudeau has gone and done it now. “Godzilla vs. Bambi,” read one headline after Canada’s prime minister said he was willing to renegotiate the North American Free Trade Agreement, if that was really what president-elect Donald Trump wanted. The Opposition, some old trade hands and at least one major newspaper columnist were aghast. What was Justin thinking, tipping his hand like that?
I don’t know what Trudeau was thinking. I will guess the federal government reckoned it had little to lose by trying to discern whether Trump was bluffing. That is clever, not naive. For too long, Canada clung to the notion that it has a special relationship with the United States. Derek Burney, a Mulroney-era ambassador to the U.S., told the National Post that it is Mexican imports that irritate Trump, so Trudeau should have stayed quiet. Back in Burney’s day, lobbyists for the multinational corporations that have built their business models on the north-south flow of goods across the border could count on politicians not to rock the boat.
But if one of the forces that propelled Trump to victory was a backlash against the establishment, do you really want the U.S. Chamber of Commerce as your main ally in Washington? An overly defensive stance by Canada and Mexico would only have played into Trump’s contention that the agreement is rigged in favour of the other guys. Something seismic happened on November 8. Trudeau was right to recognize that the old rules no longer apply.
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Anyway, those who are getting hung up on NAFTA are missing something: the future.
It will be disruptive, but Trump’s victory is the best thing that could have happened to Canadian trade. Justin’s father, Pierre, attempted to expand Canada’s list of significant trading partners in the 1970s and 1980s, but the magnet of U.S. demand was too strong. Back then, the poorer countries of Asia and Latin America just didn’t offer enough reward to offset the risk of doing business in unfamiliar places. The free trade agreement Brian Mulroney negotiated with Ronald Reagan cemented Canada’s economic dependence on America. That easy access to the world’s biggest economy made Canada a complacent trader. No other big, advanced economy is so beholden to a single trading partner. According to research by Carlo Dade and Deborah Elms in Policy Options, of Canada’s 11 free trade agreements, only five are with countries that rank among the 50 largest economies, and only one of them is with an Asian nation (South Korea).
Thanks to Trump, Justin Trudeau has a chance to realize his father’s goal of creating an economy that trades with the world, not just its southern neighbour. It seems likely that any company that ships goods and services to the United States is facing years of harassment and uncertainty. The U.S. dollar has surged since the election. That will make Canadian goods and services more competitive, Timothy Lane, a deputy governor at the Bank of Canada, said on November 16. True—but that comes at the expense of American companies, which will only feed America’s protectionist rage. The main reason to avoid emerging markets in the past was the unpredictability of their politics; in Trump’s world, political risk is everywhere, so companies might as well chase growth wherever it is found. Countries such as China, Indonesia and Vietnam will begin to look more appealing.
It will be Trudeau’s job to help them do this. The Trans-Pacific Partnership is dead, but that needn’t stop Canada from using it as a basis for agreements of its own with Japan, Vietnam, Singapore and the other members of the ill-fated pact. With the U.S. out of the picture, Canada stands a better chance of negotiating more favourable terms with other middle powers. That situation may even help Canada do a deal with Beijing, which saw the TPP as an attempt by the U.S. to contain China’s influence. To be sure, Trudeau must stay on top of what is happening in Washington. But most of his trade resources should be deployed elsewhere. While the U.S. turns inward, Canada should help itself to all the opportunities the Americans are leaving behind.
Kevin Carmichael is a journalist and senior fellow at the Centre for International Governance Innovation.
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