So, What Just Happened?
September 4, 2018
Last Friday, my usual writing day, I did my column on a nice safe topic, protectionism, and then planned to go home. As usual, however, reality got in the way; this time in the form of Canada. So protectionism will wait for another day—it's definitely not going anywhere—and instead, I will spend a few minutes on what happened last week. Of course, you know what happened—the United States and Canada did not reach agreement; the administration notified Congress anyway of its intent to sign an agreement, at least with Mexico and perhaps with Canada later; the parties said surprisingly nice things about each other (except for our president who was rude as usual) and agreed to meet again this week. So, what does it all mean?
First, it is a reminder that trade negotiations are five-act plays, not short attention span theater. It wasn't fully baked, the deadline was artificial, and the parties lived to talk again. The next deadline—30 days from last Friday when the administration must send Congress an actual text—is a more serious deadline, but it leaves the parties plenty of time to make a deal if they wish to do so.
Second, the letter to Congress has set off a predictable debate about whether it met the terms of last year's notification, which referred both to Canada and Mexico and also to the North American Free Trade Agreement (NAFTA), a trilateral agreement. Ultimately, including Canada—everybody's preferred option—would moot this debate, but it is worth remembering that should only a bilateral agreement be submitted, it is Congress, not the president, who gets to decide if it meets the terms of last year's notification. More important, that decision does not have to be made until the agreement and its implementing bill are actually submitted, which means it will be the next Congress, not the current one, that decides. It also means the mid-term elections could have a significant impact on the fate of the agreement. If the Democrats take control of either body, the uphill climb to enactment would be much steeper (which explains why U.S. Trade Representative Robert Lighthizer is spending so much time on labor issues).
That, of course, does not mean the current debate will go away. Members of Congress, many of whom badly want Canada in the agreement and others who just want to give the president a hard time, will insist Canada be included and will threaten to vote against considering a U.S.-Mexico agreement under fast-track procedures. The president will respond, as he has already, by telling Congress to get lost, or by personally attacking the leaders on the other side. This will be a fun game for a while and could work to Canada's advantage if the pressure is sufficiently intense. Whether Congress is actually prepared to vote against the president remains to be seen. So far, they have whined and complained but have not acted. An early test would be if someone offers a resolution stating the Congress will not consider an agreement without Canada, and the leadership decides to allow a vote on it.
Third, is the question of tactics. The Canadians, reflecting their basic decency (I'm biased—my mother was Canadian), have consistently expressed a positive view about the negotiations and have stated they see the Americans acting in good faith. Ambassador Lighthizer has, in turn, refrained from criticizing Canada. The president, regrettably, has not. Once again, he has demonstrated that he has only one tactic—increased pressure and increased insults. By this time, it appears the Canadians, like the Chinese and the Europeans, have figured this out and are no longer fazed by it. Some have suggested that the president's leaked comments last Friday saying he would make no concessions to Canada caused the talks to fail, but I prefer to think real differences were the cause, differences which are still capable of resolution—if the president will just stop tweeting.
Finally, missing from the debate lately has been a serious discussion of the effects of NAFTA termination. The president blithely says we would be better off without it, a statement astounding in its ignorance of how our economy works. We have spent 24 years integrating the North American market. Unraveling it now would have dire consequences on both sides of the border. Just because our economy is larger than theirs does not mean there will not be substantial pain for each of us, both in terms of the cost of adjustment and the inevitable creation of supply chains that are less efficient than the ones we have now. A better course would be, like a little girl in the room full of horse manure, to keep searching for the pony. We know it's in there someplace.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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