Are the Americans Bluffing on NAFTA?

We’ve all been there. Have you ever been in a situation where you are asked a question or need to react to something and you just bluff your way through it? I know, some of you will say I’ve been bluffing thru it over the last 32 years of writing this column. I digress. There have been a few situations in life where we find we’re bluffing through, just to get to the other side of the question. Avoiding the truth when you don’t know the answer can be so liberating, albeit for fleeting moments.

Of course it’s always good to tell the truth. Or, even better when you are in a situation where you don’t know, just admit you don’t know then go on. With the NAFTA talks going into their eighth round shortly, we need all the truth that we can get.

So it goes for the President of the United States. Last week the American President was caught in a bit of a contradiction when he boasted in a speech in Missouri about making up figures on the fly regarding an apparent trade deficit with Canada. He was caught on tape telling Canadian Prime Minister Justin Trudeau that he was wrong about the US not having a trade deficit with Canada. President Trump said, “Wrong Justin, you do”—he then added, “I didn’t even know, I had no idea.

It would seem such a strange admission, but this is the President of the United States, who obviously didn’t know about the trade relationship with their largest trading partner. Of course, it was coming from the most powerful man in the world who is at the top of the richest country in the world. Regardless of how you feel about President Trump and the way he does things, as Canadians it should make you shudder that our trading relationship can be trivialized that way.

It makes you wonder what at the end of the day will happen regarding NAFTA. It wasn’t too long ago that we couldn’t even imagine NAFTA being revisited. That all changed with the election of Mr. Trump, who had always called NAFTA a disaster. Since then, the Prime Minister and Foreign Affairs Minister Chrystia Freeland have done an admirable job keeping the file together for Canada. It’s pretty obvious as time goes on, what we are up against. Being on the President’s good side, at least gives you a chance.

Needless to say, despite going into the eighth round of the NAFTA talks, what happens if it all blows up one morning on twitter with the announcement that NAFTA is being terminated? Of course, nobody really knows, but there may be something like a “son of NAFTA” or we may revert back to the Canada US Trade Agreement (CUSTA) or back to WTO rules or nothing depending on what the Americans would like to do. They are the largest country in this trading relationship, as I’ve always said they will define the trade agreement.

If we reverted back to the WTO rules tariffs would come into effect but there would also be a restriction in the movement of professionals, trade in services and investment on both sides of our border. It would most likely lead to higher prices and higher import costs and weaker long-term economic growth. There would be winners and losers, it would was surely look a lot different than it is now.

I even read one Bank of Montréal study that an exit from NAFTA and a reversion to WTO rules would ultimately result in a wider United States trade deficit with Canada. Of course, who knows what’s in our future. However, that would be exactly what the President of the United States doesn’t want. But remember, that line that he said, “He had no idea.” As one Canadian commentator said yesterday, it would be quite funny if it weren’t so serious.

Of course I am no purveyor or soothsayer of how this might all work out. I’ve even been a critic of free trade in the past. However over the last 25 years there’s been such an integration of the Canadian economy into the United States that any rupture of that now would be incredibly serious. With lots of Ontario corn being loaded in Hamilton Ontario over the last several weeks, on the way tariff free into the European Union via our CETA agreement, it’s showing the benefits of trade. I would hope Canada could keep it together despite the vitriol from the President to get the good NAFTA deal everybody wants.

Clearly, NAFTA negotiations are tough even without the President’s incredulous admissions. Are the Americans “bluffing?” It would seem nobody knows, even the Americans. So let’s smile back, and just be nice. It’s a Canadian thing.