With Democrats in the House, the trade war will continue and could even be worse
Workers scrub a glass skylight in front of the House of Representatives on Capitol Hill in Washington, on Monday.J. Scott Applewhite/The Associated Press
Lawrence Herman is counsel at Herman & Associates, a member of the Expert Group on Canada-U.S. Relations and a senior fellow at the C.D. Howe Institute in Toronto.
It’s premature – and even naïve – to think that the Republicans’ loss of control of the House of Representatives (and the Senate) will change U.S. President Donald Trump’s anti-Canadian policies or lessen his aggressive trade war against this country.
Quite the contrary.
This week’s political upset in Congress will mean Mr. Trump will double down and rely even more aggressively on his presidential powers over trade relations. Even if Mr. Trump’s use of tariff authority under the long-forgotten 1930 Smoot-Hawley Trade Act doesn’t survive legal challenge, experts say his tariffs issued under the 1962 Trade Expansion Act and the 1974 Trade Act are on sound legal footing.
Without the Democrats having the necessary 60-seat Senate majority, these laws are not going to be amended. The Democrats don’t want these laws changed either.
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The result is that the current tariff wars against Canada are going to continue. They could even get worse.
Mr. Trump and the MAGA team have relentlessly targeted Canada, even before the election period, with insults and derogatory comments unprecedented in the annals of Western democracies, from a neighbour, a fellow G7 and G20 member, a NATO and NORAD ally, a long-standing free-trade partner. Nothing in post-1945 history compares to this.
Given this level of belligerence, whatever the domestic political impact of this week’s changes in Congress, it’s impossible to see Canada reaching any mutually acceptable, balanced trade deal with this administration.
Even before these more recent developments, the efforts of the Canadian negotiating team in Washington last August, trying to hammer out some agreement with the MAGA team, were doomed.
What should have been Canada’s approach, once Mr. Trump announced his latest Smoot-Hawley tariffs last July, would have been to immediately proclaim countermeasures and suspend further talks then and there. In any case, that’s where we are now after the ill-fated negotiations collapsed in August.
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Prime Minister Mark Carney has repeatedly said Canada will resume trade talks under the “right circumstances.” And even if it appears some form of talks may be back on, the United States–Mexico–Canada Agreement still faces a wobbly future as a free trade agreement. Let’s be realistic. Tariffs and trade restrictions will be part of the Canada-U.S. landscape for the foreseeable future.
Some say things could change after Mr. Trump’s term ends, that with a new administration there’ll be a renewal of good faith and a return to balanced negotiations without diktats and unilateral demands, a willingness to restore predictability and stability in two-way trade. Who knows?
If this were to happen at some distant point – and maybe it will – there are two things that must be on top of Canada’s agenda.
The first is to eliminate the use of self-defined “national security” exemption as a way of the U.S. circumventing trade obligations, an exemption in the USMCA that Mr. Trump has employed without limit. Otherwise, as Mr. Carney observed, any signature of the part of the U.S. will only be in pencil. There are ways trade partners can deal with legitimate national security, such as requiring good faith consultations aimed at resolving the issue short of peremptory trade actions.
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Another way is to remove constraints on Canada concluding other trade arrangements, including with countries such as China. When the USMCA was being negotiated, the provision in the agreement giving the U.S. oversight on third-party deals with non-market economies didn’t seem totally unreasonable. But the MAGA team has used this as a cudgel, in its opposition to Canada allowing imports of even a small volume of Chinese EVs. There are ways of combatting China’s flouting World Trade Organization rules and exporting its massively subsidized overcapacity without giving the U.S. a right of supervision.
However, it’s hard to see matters improving to the point of there being serious free trade engagement with the U.S. Even with the Democrats taking control of Congress – and maybe at some future time the White House itself – it won’t mean a major shift in U.S. trade policy, given the Democrats’ own penchant for protectionism as a result of organized labour’s influence. While the tone may be better and less antagonistic, don’t expect a return to anything akin to the long-gone NAFTA days.
Taking the world as it is, to borrow the Mr. Carney’s words at Davos, Switzerland, it’s about “variable geometry” as the motivating feature of Canada’s new trade strategy. Canada has to move full speed ahead to cement arrangements with more steadfast and reliable trading partners.