Trudeau, Trump & ‘Tweaking’ NAFTA

Finding common ground

March 2, 2017

The goal of NAFTA was to eliminate barriers to trade and investment between the U.S., Canada and Mexico. Donald Trump, both during his presidential campaign and since his inauguration expressed dissatisfaction with some of NAFTA’s provisions. The recent meeting in Washington between Prime Minister Trudeau and President Trump was intended, in part at least, to clarify key areas of difference between Canada and the U.S.

Canadian business leaders said they felt some relief after Trump told reporters that NAFTA would only be ‘tweaked’, rather than torn up, as he had promised on the campaign trail. But they remained unsure what a Trump tweak might look like. Parts of corporate Canada have been bracing for the worst since Trump’s unexpected election victory in November. The combination of his unpredictability and his protectionist views has raised concerns across many business sectors.

In particular, businesses are watching closely to see whether the U.S. will follow through on a proposed border-adjustment tax, which has many firms deeply concerned. A new study — by the C.D. Howe Institute think-tank — warned that the border plan would inflict considerable damage on both economies. The analysis said the plan would reduce bilateral trade in both directions and estimated it would shave nearly a full percentage point from Canada’s economic growth. They predicted it would also cut nearly 1.3 percentage points from U.S. economic growth.

President Trump observed his main objective in revamping NAFTA was to take aim at Mexico, which has a $58-billion (U.S.) trade surplus with the United States, an inequity Trump dislikes. Canada is the opposite, importing $11-billion more than we export. “It is a much less severe situation than what is taking place on the southern border. On the southern border for many, many years the transaction was not fair to the United States. It was an extremely unfair transaction … we are going to make it a fair deal for both countries,” President Trump said.

The hefty, and controversial, 20% border tax promoted by Republican House of Representatives Speaker Paul Ryan was not even raised in the meeting, according to a Canadian official. President Trump is already on record as being skeptical of the tax, calling it “too complicated.” This came as welcome news to the Canadian delegation.

The Canadian government pitched the idea of promoting female business leaders to President Trump’s team as a way of finding common ground with the new U.S. administration on Prime Minister Trudeau’s first trip to Washington. This imaginative suggestion attracted the interest of Ivanka Trump, who attended the discussion and seemed strongly impressed by it. The two leaders then launched a joint initiative to empower women-owned businesses to contribute to economic growth and enhance the integration of the two economies.

Overall, most commentators agree that the Trudeau/Trump meeting was a moderate success. Despite ideological differences, they appeared to find common ground and get on reasonably well personally. It’s a start.