NAFTA

Canada v Mexico: Trump seeks to divide and conquer in Nafta negotiations

Both countries are scrambling to best handle a president who ranks among the more unpredictable elements of the upcoming negotiations

Justin Trudeau and Donald Trump.
Justin Trudeau and Donald Trump. Photograph: Jonathan Ernst/AFP/Getty Images
 The rhetoric against a neighbouring country dominated Donald Trump’s presidential campaign: a billion-dollar wall, a crackdown on immigration, and a steep border tax. Yet when Trump fired the opening shot in his trade war, it was aimed not at Mexico – but at Canada.

First came an average 20% tariff on Canadian softwood lumber. Months later the Trump administration piled another tariff of nearly 7% on the sector.

Trump launched a broad attack on several sectors north of the border. “Canada, what they’ve done to our dairy farmworkers is a disgrace,” he told reporters. “We can’t let Canada or anybody else take advantage and do what they did to our workers and to our farmers … included in there is lumber, timber and energy. So we’re going to have to get to the negotiating table with Canada very, very quickly.”

The sharp reversal – a few months earlier Trump had characterised the US-Canada relationship as “outstanding” – came as a surprise to many.

“Step aside, China and Mexico: Canada is now Donald Trump’s whipping-boy du jour on trade,” said the Canadian Press, while Politico offered their thoughts on why president had not gone after Mexico first: “Canada is an easy target and doesn’t have as many weapons to fight back.”

Others said it was long overdue. “Canada was getting a free ride,” said Federico Estévez, a professor at the Autonomous Technological Institute of Mexico. “All of the fire was headed south of the US border – so Canada was getting off easy.”

Estévez pointed to the looming renegotiations of the North American Free Trade Agreement to explain the turnaround. “I think Trump understood something basic, which is that the US will not be able to tweak Nafta or rework it unless it splits up Canada and Mexico and makes Canada squirm just as well,” he said. “You want to open up some battlefronts – and that’s what he’s effectively done, to the surprise of everybody.”

With the renegotiations slated to begin on 16 August, all of the interactions of past months – from pleasantries to attacks – are again under the microscope. Against a backdrop of grievances over trade deficits and protectionist policies, officials in both Canada and Mexico are also scrambling to shore up strategies to best handle a president who ranks among the more unpredictable elements of the upcoming negotiations.

Both countries have much at stake. Canada sends about three-quarters of its annual exports to the US while nearly 400,000 people a day cross the shared border. In Mexico, some 80% of exports end up in the US.

Mexican and Canadian officials have been laying the groundwork for months. Trudeau’s inner circle have fostered close contacts with the Trump administration, while representatives from Canadian government and business have been criss-crossing the US to reinforce how Americans benefit from their relationship with Canada, said Colin Robertson of the Canadian Global Affairs Institute.

“There have been, I think, 170 visits by Canadians to the States since January. And not just to Washington but also into Trump territory,” he said. “And it’s not just ministers, it’s legislators and premiers and provincial legislators.”

The aim, said Robertson, is to mitigate what he described as Trump’s “situational politics”, which see the president shift stances depending on the audience he’s addressing. He pointed to Trump’s swipe at Canadian dairy as an example, as it came while the president addressed an audience in Wisconsin.

In Mexico, the job of managing relations with the Trump administration has fallen to Luis Videgaray, a foreign minister whose experience in the world of finance has overlapped with Trump’s son-in-law Jared Kushner.

Despite initial setbacks – Trump signed an executive order to build the border wall and tweeted that Mexico would pay for it even as Videgaray was heading to Washington to meet with Kushner – the minister and his small team have earned some plaudits as the threat of Trump has apparently diminished for Mexico and the peso bounced back after a Trump-inspired slump.

So far, Mexico’s strategy for handling Trump seems to lie in trying to save some provisions of Nafta at all costs, such as investor protections, analysts say.

The government closed online consultations late last month, though it has attracted criticism for appearing to pay closer attention to the country’s big business elite while ignoring the interests of smaller firms and beleaguered workers.

“I’ve not read the national interests of Mexico spelled out,” said Carlos Heredia of the Centre for Research and Teaching of Economics. “There hasn’t been any sort of open consultation – the online consultation is sort of a joke – but there’s nothing saying, ‘We are going to represent the national interest of Mexico, not just the top echelons of business and politics.’”

Mexico released its objectives for Nafta negotiations last week. It joined Canada in opposing US plans to eliminate dispute resolution mechanism known as Chapter 19, but also will propose anti-graft initiatives and provisions for small business and the digital economy. Energy will also be on the table as Mexico approved a reform to open its oil industry in 2013.

From immigration to the environment, Trump’s political stances – widely despised in both Mexico and Canada – could colour discussions at the negotiating table, raising questions of how America’s neighbours will respond.

While Trudeau’s approval ratings remain high, suggesting many Canadians are comfortable with his reluctance to chastise Trump, Mexico’s Enrique Peña Nieto is even more unpopular than the US leader – and his apparent unwillingness to talk tough with Trump is widely as a weakness.

“The greatest problem of the Mexican response to Trump has been that the Mexican government has acted over and over again as if the constituency of its foreign policy were only one person: Donald Trump,” said Carlos Bravo Regidor of CIDE. “This has left it open to vulnerabilities, the most of important of which is an inability to voice the legitimate grievances Trump causes many regular Mexicans.”

Despite their differences, Trump has demonstrated a level of cordiality and friendship with Trudeau, said Laura Dawson, who heads the Canada Institute at Washington’s Wilson Centre.

“It’s kind of funny in the tweets that I’ve been reading. When he’s talking about his two neighbours, he calls them, Justin and the Mexican president,” she said. “I don’t know if he doesn’t know Trudeau’s last name, I don’t know if he knows Peña Nieto’s name at all – but its always Justin and the Mexicans.”

What’s certain is that Canada and Mexico now realise they’re in it together. “There was some public opinion, at least in Canada, that we could go at it alone, without Mexico because they’re in the crosshairs and we’re not. I think that that sentiment has really subsided,” said Dawson, pointing to official statements from both countries that reiterate the importance of the trilateral agreement.

While Trump has gone after both neighbours, he’s also demonstrated that he’s open to changing his mind on things, said Dawson.

“He’s willing to find a parade and get in front of it, so I think that if Canada and Mexico are skillful enough about giving the president some wins that he can claim – you know, modernisation of the agreement, certain things that affect labour or manufacturing – I think they can also move ahead on the modernisation agenda on the Nafta.”

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Tests ahead for Justin Trudeau

Justin Trudeau made a splash in Canada – now the real test begins

The new prime minister won praise and made headlines early on, but his to-do list includes a host of key issues with consequences beyond Canada’s borders

Justin Trudeau will soon get a chance to pitch his plan for a renewed continental partnership on the environment and clean energy in the yet-to-be scheduled annual North American Leaders’ summit.

Justin Trudeau will soon get a chance to pitch his plan for a renewed continental partnership on the environment and clean energy in the yet-to-be scheduled annual North American Leaders’ summit. Photograph: Adrian Wyld/AP

in Ottawa

Tuesday 5 January 2016 11.00 GMT

Canada’s telegenic new prime minister, Justin Trudeau, made a good first impression on the world stage after the surprise Liberal victory swept the former Conservative government from power last October.

He won praise for the gender parity of his cabinet – and for his off-the-cuff explanation: “Because it’s 2015.”

He made headlines for greeting a planeload of Syrians arriving in Canada under his commitment to bringing in 25,000 Syrians by March.

And during a hectic tour in November of four international forums – including the Paris climate meeting and the Apec summit – Trudeau held his own with his international counterparts.

But political observers say that global allies will be closely watching the neophyte Liberal government in 2016 as it starts to put flesh on the bones of its many campaign pledges.

“They are clearly trying to set a different tone from the Conservative government, but pretty soon they’re going to have to get their teeth into some pretty substantive issues,” said David Bercuson, director at the University of Calgary’s Centre for Military, Security and Strategic Studies.

Trudeau’s new year to-do list includes a host of key issues with consequences beyond Canada’s borders, from following through on ambitious climate promises to tackling international trade and clean energy deals and national security issues.

On defence, that means pulling Canada’s six fighter jets out of the anti-Islamic State coalition while stepping up military training and humanitarian efforts – a plan yet to be detailed – replacing its aging fleet of CF-18 fighter jets and expanding its peacekeeping efforts.

The decision to end the combat mission against Isis was one of Trudeau’s first policy announcements after his election but it is unlikely to create much tension in the Canada-US relationship, said Andrew Finn, with the Canada Institute at the Washington-based Wilson Center.

“Canada is still going to be involved in the intelligence sharing, they’re still going to have their trainers there,” he said. “There’s still a commitment to the fight.”

Canada, along with allies like Australia, the UK, Denmark and Norway, is part of the US-led Joint Strike Fighter program to design and develop a new, affordable, cutting-edge fighter jet.

In 2010, under the former Conservative government, Canada committed to purchasing 65 of the new jets without holding an open procurement process. That proved controversial, along with the costs of acquiring the new fleet, and the Liberals pledged they would seek a cheaper alternative during the campaign.

Bercuson said that the US will be concerned that whichever jet Canada picks to replace its CF-18s, it must meet key capabilities.

“We have a responsibility to our friends in Norad,” he said. “For the Americans to look north and see a big hole in continental defence is not the best way for us to win friends and influence people in Washington.”

Twelve Pacific rim countries have signed a sweeping trade deal but will it cut red tape and boost commerce or is it a sellout to big business that will cost jobs?

On trade, the Liberals have committed to implementing the Canada-European Union agreement (CETA) and consulting on the Trans-Pacific Partnership (TPP) deal.

Former Canadian diplomat Colin Robertson said Trudeau will be pressured by TPP partners to support the deal but won’t have to tackle it politically until the 12-nation agreement is brought before US lawmakers for a vote next year.

“If you endorse the Canada-Europe deal it’s pretty hard not to endorse the Trans-Pacific Partnership,” he said. “And arguably it’s more important to us because it includes the United States and Mexico, which effectively allows us to update Nafta.”

Robertson also said that Canada’s partners will keep a close eye on Trudeau’s handling of the country’s finances.

The government said it would run up to CAD$10bn annual deficits over three years before balancing the budget in 2019 in order to pay for major infrastructure and sustainable energy projects.

It has also pledged to increase funding to First Nations for infrastructure, housing, and education, has opened the door to boosting federal transfers to the provinces, and promised better services to veterans.

But low commodity prices, a worsening fiscal outlook and a broken promise that a middle-class tax break would be revenue-neutral is already raising doubts about the final price tag.

“Other countries will look at how he handles that side of it – that’ll be a big test,” Robertson said.

“After the financial crisis (Canada) preached a bit – probably with some justification – to others. They’ll be looking to see if there’s continuity there because that’s important for the money markets.”

Trudeau has committed to strengthening Canada’s ties with the US – which floundered under former prime minister Stephen Harper over the failed Keystone XL pipeline project – and with Mexico.

Trudeau will soon get a chance to pitch his plan for a renewed continental partnership on the environment and clean energy in the yet-to-be scheduled annual North American Leaders’ summit.

Trudeau has also been invited to the White House for a state dinner in March, the first Canadian leader to be feted in such a way since 1997 – Robertson described the two as seeing each other as “simpatico souls” on their policy vision.

But despite the honeymoon period, Liberals remain untested in a world where events like the Paris attacks have shown that the unexpected can overturn even the best laid plans and intentions.

“Now you start looking to see what they actually do and how they deal with their first crisis, which may well be foreign,” he said. “That will be the test.”

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