Canadians and Americans have scarcely begun to confront new and powerful challenges that will demand collaborative responses, writes Stephen Blank.
By Stephen Blank, July 29, 2019
One Canadian journalist described how senior Ottawa policy-makers were shocked in the first months after the US election: “the enormity of the change began to dawn on us.” Yes, President Trump has defied not only the rules of the game the US and Canada have played over the years but, perhaps more seriously, overturned the attitudes and style that conditioned them. Still, seen through the dust raised by Trumpian blasts, life has gone on and bilateral economic ties remain reasonably robust. However, Canadians and Americans have scarcely begun to confront new and powerful challenges that will demand collaborative responses. Here, Trump’s legacy may be more dangerous, if it makes dealing with these trials more difficult.
It is no secret that Mr. Trump is ill-informed, and dominated by a few simple ideas. Life is about deals and in deals, there are only winners and losers. One must never be a loser. For Trump, a nation’s trade balance is a perfect example of winners and losers: If you run a trade deficit, you must be a loser; a trade surplus, you’re a winner. That this make no sense in economic terms doesn’t matter to the President. Moreover, those who deal with Trump have come to the sad realization that, to him, no deal is ever really done. Winners seize the advantage and demand more. Bullying is a chosen posture, and negotiating is carried on by threats and linking disparate issues – even when prior agreement has been achieved. Trust is the casualty.
Canadians have been deeply insulted by Trump, and many are displeased by Ottawa’s efforts to cater to him. The Trudeau government has seen many of its global aspirations upset by Trump, from the Trans-Pacific Partnership (TPP) to the Paris Agreement to the Iran Nuclear Deal, to say nothing about its hopes for better relations with Washington.
And yet, life has gone on.
Canada remains, if not the US’s largest trade partner, tied for first place with China. It is the US’s largest export destination. Moreover, US exports of goods to Canada increased in 2018, much as they have done so since the end of the Great Recession. In May 2019, overall Canadian exports to the US rose to a new monthly record. The stock of US foreign direct investment in Canada continued to grow as well, and Canadian direct investment in the US did the same.
The 2018 Border Barometer, published by several US and Canadian universities, reports that latest data show “a couple of common misconceptions are dispelled.” “For the most part, truck and rail freight had recovered or surpassed pre-recession levels by 2017. Since this required a significant climb back from the depths of the recession years, it is not so clear that surface trade is in a long-term slump.”
Finally, as to the US trade deficit with Canada, it remains true that while the US runs a deficit in goods trade, it continues to run a surplus in services. And more interesting, the US would run an overall trade surplus if it were not for shipments of petroleum to the US, which the US has long considered more secure and desirable than imports from elsewhere.
The bottom line seems to be – thus far – that notwithstanding thicker post-9/11 borders, the Great Recession and two years of Trump, life does go on.
What about that worst trade agreement ever? The despicable NAFTA.
NAFTA negotiations were characterized by narcissistic performances and threats hurled by the White House and frantic tap dancing by Ottawa. The President seems to have said that any deal with Canada would be “totally on our terms,” clearly accused Canada of “decades of abuse,” and threatened Canada with “ruination” by imposing auto tariffs. And he certainly didn’t care for Mr Trudeau – “weak” and “dishonest” – until mid-June when Justin became his “friend” once again.
So what happened? Most experts feel that the USMCA is more NAFTA 2.0 than a new agreement. Several important changes were made, including the 16-year expiration date and review clause; some changes in dispute resolution (but here the Canadians won out, keeping the basic NAFTA system in place); the US will be able to enter Canada’s dairy market (but just slightly more than Canada already had offered in the TPP); changes in auto rules increasing North American content and, more important to Mexico, a new requirement that 40 percent of each car must be produced by workers making $16 an hour; and increased protection for intellectual property.
Critics felt the agreement leaned heavily to protect business interests (the same criticism made of the CUSFTA and NAFTA), but overall the impact of the revised NAFTA seems modestly favorable. The US International Trade Commission’s review concluded that the Trump administration’s revised North American trade agreement would offer modest benefits to the US economy – which challenged both critics and the president’s claims that the new accord would make much greater benefits.
Of course, nothing is over until the fat lady sings – and in this case, that will be the ratification of the agreement by the House of Representatives (the implementing bill is considered a revenue bill, which is why it is in the House, rather than a treaty that would go to the Senate), a conclusion not yet in sight. Democrats, backed by many labor groups, push on the same buzzers as their predecessors pushed with NAFTA – mainly labor and environment concerns. Of course, the fate of ratification is tangled both in rising 2020 election politics and in the Democrat party politics in the House.
But nothing so far matches the magnitude and importance of the issues barreling down on us in the near future – the impact of technological change, the impact of climate change, the impact of demographic change. These issues will affect and reshape our economic relations. And, here, collaboration may be vital to managing these issues.
Technological change – increasingly rapid and widespread – is surely transforming every dimension of our lives. In just one dimension, it will likely have a profound impact on the systems of supply, production and distribution that drove deeper North American integration since the 1980s. Think of autos, which became the symbol of collaborative, cross-border supply and production systems. The old familiar corporate faces may not be the leaders in the emerging transportation industry and habits of cross border relations may be shattered. The same is true for electronics and telecommunications. How do we build the widest base of cooperation in this new world? How can we keep entire regions from being left out in the transition to this new environment?
Technological change must be supported by energy and infrastructure.
With regard to energy, Canadians, Americans and Mexicans alike benefit from North America’s deeply integrated oil, gas and electricity systems. Increasingly, the main energy issue for North America will be to determine an energy mix that optimizes availability, cost and sustainability for the next generations. How do we view energy in continental terms rather than in separate national boxes?
Competitiveness requires efficient, safe and sustainable transport, logistics systems and border crossings. But North Americans face a tremendous infrastructure crisis. Transportation of goods and people is limited throughout North America by collapsing infrastructure; pipelines, water systems and electric wires are weakening; broadband carriers are reaching capacity; and sea- and airports are falling behind international competitors. Insufficient investment has been made in maintaining the roads that connect us.
Environmental threat cannot be discussed as three separate national issues. Climate change does not stop at the Rio Grande or the 49th parallel; it does not recognize national borders. We must learn to think of our water and agricultural resources and systems as continental in nature. We must deal with climate change in a continental framework, and develop policies for mitigation and for adaptation in a common framework. Easy to say.
The North American nations are undergoing extensive demographic change. These changes impose hard limits on policies for economic growth and fiscal balance and create political, economic and social turmoil. Population movement – mainly Mexicans coming legally or illegally to the US – has been the most visible and politically potent dimension of this. But we are all experiencing high levels of internal migration as people seek to follow jobs, creating new metro-regions on one side and depopulated areas on the other. Aging is going to be an increasingly powerful driver of change in North America. We face growing imbalances of the supply of medical and educational resources and changing levels of demand for these services.
Finally, we confront a growing need for a North American strategic vision for dealing with the Arctic, NATO, China and Central America, as well as adapting the postwar-era international institutions to new global realities. Challenges are clearly on the horizon when it comes to all these areas – from the opening of the Arctic to China’s arrival as a global power – and our global institutions seem ill-inclined to manage them.
How do we build collaborative solutions to these issues that affect us all?
Canada watcher Chris Sands writes that “the USMCA negotiations have done serious damage to US-Canada relations that will take time to repair. Among the general public in Canada the worst damage has been to trust.”
Big questions lie ahead. Was Trump an anomaly or does he represent a resurgence of America’s inward, isolationist, nativist personality? Would a Democratic President make knitting back relations with Canada a top priority, and would he or she seek to build the means to confront these powerful issues facing us? Stay tuned.
Stephen Blank is a senior fellow at the University of Ottawa’s Institute for Science, Society and Policy and a senior fellow at the Macdonald-Laurier Institute. A shorter version of this article was published in the Hill Times.
