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Is the North American Free Trade Agreement, NAFTA, still in effect? I ask because I heard that Donald Trump might raise tariffs against Canada.
The question could not have come at a better time.
Because the Republican candidate for the American presidential election is actually threatening, if he is elected in November, to impose all sorts of new trade tariffs, including on exports from his neighbour and partner Canada.
Also because the free trade agreement that replaced NAFTA in 2020 has the particularity of being accompanied by a provision requiring its review every six years, and Canada is actively preparing for this delicate meeting, scheduled for 2026.
We remember. According to the man who was then in the White House, NAFTA was “the worst trade agreement ever signed” by his country. Donald Trump had warned at the time that the United States would withdraw unilaterally if its neighbors did not agree to renegotiate it. This led to the conclusion of what is now called the Canada-United States-Mexico Agreement (CUSMA).
Even though these negotiations, in which Canada participated with a knife to its throat, were far from ideal, they allowed for an update of the rules of NAFTA that was necessary, 26 years after it came into force, observes Gilbert Gagné, professor at Bishop’s University.
To do this, we drew heavily on the Trans-Pacific Partnership that the three countries had recently signed and on which Trump had ironically just turned his back. We added a few provisions to please the Americans, notably on access for their dairy products to the Canadian market, minimum North American content in automobile manufacturing and the dispute settlement mechanism.
Unusually, it also provided for a mandatory review every six years, with the agreement ending 10 years later if the three countries did not agree on common rules again. “I could be wrong, but I don’t sense a great appetite on either side for a thorough renegotiation,” says Gilbert Gagné.
No risk to take
There is a good reason for this, explains Véronique Proulx, president and CEO of Manufacturiers et exportations du Québec. The United States alone receives almost three-quarters of Quebec’s goods exports, and the last thing we want is to relive the anxiety of the last renegotiation. Not everything in CUSMA is perfect, but it’s not too bad, and we’ve adapted to it.
It’s true that Joe Biden has found a way to add new protectionist measures that lead companies to expand their activities in the United States rather than here, but “Canada remains a small player, and we prefer to maintain our gains than to run the risk of losing ground,” she says. Nevertheless, it is certain that “if Trump is elected, everything could be called into question.”
The CUSMA has nevertheless allowed for some significant progress, notes Michèle Rioux, professor at the University of Quebec in Montreal, among other things in terms of defending workers’ rights. However, we could do better.
Today, the main obstacles to trade are much less about tariffs on goods than about differences in standards and rules between countries, explains the expert. The challenge would be to find better cooperation mechanisms in sectors where we want to have more fluid trade, but also a way to recognize the right of each territory to govern itself as it sees fit in other sectors, such as the promotion of culture in Quebec.
Negotiations that will be long
“These negotiations will be long,” warns Richard Ouellet, professor at Laval University, about the process that should officially begin in two years and which could, theoretically, give the three countries until 2036 to reach an agreement.
First, because we are used to waiting until we are on the brink of a precipice before getting down to business. Second, because the CUSMA left several important questions unanswered, such as the limits to protectionism in public contracts or the links and obligations between Canada and the United States in terms of energy. Also because “the world has already changed a lot since 2020,” with the rise of protectionism, national security issues and rivalry with China.
Ottawa is in the midst of consulting with key interest groups, experts and citizens on the issue. It did not wait for the outcome of the American election to launch a diplomatic offensive, particularly with American business people and elected officials most likely to remind protectionist currents of the importance of trade ties with Canada.
“That’s what we did when we negotiated the USMCA, and we’re doing it well,” says Richard Ouellet. If Trump were to be elected and then keep his promise of a 10%, maybe even 20%, tax on all imports, and 60% on imports of strategic products, “it would be a disaster for Canadian businesses.”
The specialist hopes that Canada will finally dare to “raise its voice a little at the negotiating table.” “The United States is not in as strong a position as it was. It needs others now. It needs our energy, our natural resources, North American value chains that work well.”