Donald Trump has already gone from wanting to rip up NAFTA to perhaps just refurbishing the trade pact.
A key goal for Prime Minister Justin Trudeau when he meets Mr. Trump for the first time Monday will be to get the U.S. President to go one step further – to recognize that the essence of the North American free-trade agreement is worth salvaging.
It’s a tall order. Mr. Trump has called NAFTA “the worst trade deal …in the history of the world” and a catastrophe for U.S. workers and companies. Pretty harsh words.
But consider this. The other two world leaders to come calling on Mr. Trump since his inauguration – British Prime Minister Theresa May and Japanese Prime Minister Shinzo Abe – managed to get him to dial back previous harsh rhetoric on issues that mattered to them.
So should Mr. Trudeau.
Ms. May, for example, got Mr. Trump to pledge his “unshakeable commitment” to the NATO defence alliance, a pact he had previously dissed as “obsolete.”
Mr. Abe likewise secured Mr. Trump’s commitment that the U.S. will continue to provide for Japan’s security. During the campaign, Mr. Trump suggested Japan should fend for itself and develop its own nuclear weapons.
Now it’s Mr. Trudeau’s turn to get Mr. Trump to lighten up. And nothing is more important to Canada’s well-being than its economic relationship with the United States, enshrined in NAFTA.
Monday’s meeting will set the stage for an eventual renegotiation of the deal. Mr. Trudeau needs to frame the pending talks by shifting Mr. Trump’s perception of what NAFTA is, and what it isn’t. For starters, Mr. Trudeau needs to debunk the myth that NAFTA is a job-killing monster.
The real story of NAFTA is that the 23-year-old deal has dramatically boosted trade within the region, saved jobs and helped the region stay competitive as commerce has gone global, according to a Bank of Nova Scotia report released Friday.
“NAFTA has expanded continental trade and investment, it has generated economic growth that has created jobs and boosted living standards, and it has improved the global competitiveness of North America’s three largest economies,” Scotiabank economists Jean-Francois Perrault and Brett House conclude.
The report points out that trade within NAFTA has tripled since the deal came into effect in 1994, largely due to rapid expansion of trade between the United States and the two smaller partners in the deal. Over that time, the U.S. trade deficits with Mexico and Canada have changed relatively little, and are due mainly to energy imports, not manufactured goods. If there is a culprit for the rise in the U.S. trade deficit since the 1990s, it’s primarily because of China, not Canada or Mexico, Scotiabank argues.
There no evidence that NAFTA has been a factory job-killer. Technology and productivity are to blame. Manufacturing jobs were in steady decline in the United States and throughout the developed world well before NAFTA. U.S. factory employment peaked in 1979 and has been falling in the decades since.
Manufacturing, however, is thriving. U.S. factory production reached a new record in 2016 – meaning U.S. companies are cranking out more stuff with a lot fewer workers. Manufacturing’s share of the overall U.S. economy has held steady for decades.
Mr. Trump may not buy into any of this.
But the logic of NAFTA is as potent as it was in 1994. Regional economic integration remains a bulwark against competitive challenges from the rest of the world, and most particularly China.
There is plenty of scope for improving the deal to account for the evolution of trade. When the deal was negotiated, the Internet was in its infancy and services were not as widely traded as they are now.
Renegotiation could also tackle historic grievances. For example, Canada objects to serial trade disputes over softwood lumber, protectionist Buy America rules and its vulnerability to NAFTA lawsuits from investors. The United States similarly gripes about Canada’s protected dairy and poultry sectors, and foreign ownership restrictions in the telecom industry.
Mr. Trudeau should work hard to make sure the starting point for renegotiating NAFTA isn’t based on myths and alternative facts.
OTTAWA — The Globe and Mail
Published Sunday, Feb. 12, 2017 7:56PM EST
Last updated Monday, Feb. 13, 2017 7:41AM EST