Tweaking the U.S.-Canadian Trade Relationship

Trump reaffirms commitment to NAFTA revamp during Trudeau White House visit

by Jim Stinson | Updated 14 Feb 2017 at 7:18 AM

President Donald Trump wants to tweak the overall U.S.-Canadian trade relationship, the president said at a joint press conference Monday with Canadian Prime Minister Justin Trudeau.

While Trump has bashed Mexican trade practices and the North American Free Trade Agreement, he has been relatively quiet on U.S.-Canadian trade.

“The U.S.-Canadian trade imbalance is relatively modest. That’s true no matter which sector you look at it.”

Perhaps muting his criticism is the relatively minor trade deficit the United States runs with Canada — $15 billion in 2015. That figure marked a 57.1 percent decrease from 2014, according to the U.S. Census Bureau, and pales in comparison to the over $60 million trade deficit the nation ran with Mexico in 2015.

“I am a little surprised he chose to focus on it,” said Alan Tonelson, the founder of RealityChek, a public policy blog on economics and national security. “The trade imbalance is relatively modest. That’s true no matter which sector you look at it.”

Canada does have some protective areas that have vexed American trade negotiators, including softwood lumber and dairy.

On manufacturing, though, there is little for Trump to worry about.

Tonelson said there is a world-class automobile manufacturing sector in Canada thanks in part to a deal cut with the United States in the 1960s. Tonelson said the agreement helped prop up the U.S. dollar while allowing Canada to have more manufacturing jobs. The deal rarely comes up in trade criticisms.

But Canada is also not viewed as a threat to the United States because of its high costs for business. It has high taxes, lots of regulations, and high wages.

“It’s a first-world nation,” said Tonelson.

Mexico, on the other hand, has low wages and fewer regulations. Since the trilateral trade agreement known as NAFTA was signed into U.S. law by President Bill Clinton in 1993, Mexico has slowly drawn more U.S. employers.

The U.S.-Mexico trade deficit was $58 billion in 2015, up 8 percent from 2014. The overall trade deficit is $49 billion if you add in the service surplus.

Canada, on the other hand, worked out the forerunner of NAFTA in the 1980s. It was the Canada-U.S. Free Trade Agreement, which became law on Jan. 1, 1989.

The agreement was strongly debated in the U.S. Congress and Canada’s Parliament, but was also strongly supported by President Ronald Reagan, a Republican, and Brian Mulroney, a Progressive Conservative.

The agreement eliminated most tariffs, and phased the rest out within 10 years.

Both nations appear to have benefited from the 1989 free trade agreement, which paved the way for NAFTA.

The U.S.-Canadian alliance goes way beyond economics as well. The nations have fought most wars together.

The one clash — the War of 1812 — came years before Canada gained independence from the British in 1867.

Trump noted the nation will celebrate its 150th anniversary on July 1.

“We share the same values. We share the love and a truly great love of freedom, and we share a collective defense,” Trump said to a packed press conference in the East Room of the White House. “American and Canadian troops have gone to battle together, fought wars together and forged the special bonds that come when two nations have shed their blood together, which we have. In these dangerous times, it is more important than ever that we continue to strengthen our vital alliance.”

Trudeau came with a mission to woo Trump, as 75 percent of Canadian exports go to the United States. Only 18 percent of U.S. exports go to Canada, although that is still a significant portion.

“It is a real concern for many Canadians, because we know that our economy is very dependent on our bonds with the United States,” said Trudeau, leader of the Liberal Party.

But despite being a Liberal, Trudeau generally supports exporting the billions of barrels of oil that Alberta has to offer. That new supply of oil will need more pipelines — that’s the reason TransCanada proposed the Keystone XL project in 2008.

The pipeline will transport about 800,000 barrels of oil per day from Alberta to Texas. Because it crosses an international border, the State Department could veto the project.

Obama was mum on the issue until 2015, when he blocked it. Trump immediately authorized it after being inaugurated.

As for trade, Tonelson said Trump should focus on the overall objective of fixing NAFTA — making all of North America competitive in manufacturing, with a goal of seeing most manufactured goods in North America made in the United States.

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