Roots of a new U.S.-Canada trade relationship

Meeting between Trump and Trudeau underscored integration of two economies, and differences to U.S.-Mexico relationship

By: Eric Kulisch
Photo: Art Babych/Shutterstock
   Canadian Prime Minister Justin Trudeau visited the White House Monday to discuss a range of issues with President Donald Trump, including trade and investment.
   A joint U.S.-Canada statement talked in general about cooperating to promote economic prosperity for citizens and businesses on both sides of the border, and advancing “free and fair trade,” but no mention was made about the North American Free Trade Agreement or renegotiating its terms.
   Instead, the two leaders talked about strengthening the economic ties between the world’s two largest trading partners and combatting terrorism.
   “We understand that both of our countries are stronger when we join forces in matters of international commerce,” Trump said during a press conference in the East Room. “Having more jobs and trade right here in North America is better for both the United States and is also much better for Canada. We should coordinate closely – and we will coordinate closely – to protect jobs in our hemisphere and keep wealth on our continent, and to keep everyone safe.”
   Trudeau, evading a direct question about whether changes to NAFTA were discussed, appeared to channel some of the populist message Trump espoused during his successful presidential campaign, saying cooperation in trade must translate into better prosperity for average workers.
   “Both President Trump and I got elected on commitments to support the middle class, to work hard for people who need a real shot at success,” the Liberal Party leader said. “And we know that by working together, by ensuring the continued effective integration of our two economies, we are going to be creating greater opportunities for middle-class Canadians and Americans now and well into the future.”
   President Trump suggested, however, that trade differences with Mexico are much greater than with Canada.
    He said trade relations with Canada only need minor adjustment compared with Mexico, which has taken advantage of NAFTA rules to run up a $60 billion trade surplus with the United States.
   “On the southern border, for many, many years, the transaction was not fair to the United States,” Trump said, adding that Ford, Intel, GM and others have recently announced plans to build plants in the United States. “It was an extremely unfair transaction. We’re going to work with Mexico, we’re going to make it a fair deal for both parties.”
   Trump has repeatedly made the 23-year-old trilateral deal a scapegoat for much of the nation’s ills, saying it created rules that encouraged manufacturers to outsource production, leading to millions of job losses and economic stagnation in many industrial communities. Trump directed his ire at Mexico, where many American companies took advantage of government incentives to set up operations close to the border, while making little mention of Canada.

Finance Minister Bill Morneau noted that his country buys more American products than all the members of the European Union combined. Those purchases support about 9 million jobs that pay better wages than jobs that only rely on domestic sales.

   Trump promised voters quick action to renegotiate NAFTA and threatened to withdraw if Mexico and Canada did not go along, presumably by agreeing to U.S. conditions. He also said companies that moved production south of the border could face a 20 percent to 35 percent tariff on imports into the United States.
   In recent speeches, Canadian and U.S. business leaders have also stressed the need to enhance cross-border trade.
   Canada is the largest export market for the United States and Finance Minister Bill Morneau, in an address last week at Georgetown University in Washington, D.C., noted that his country buys more American products than all the members of the European Union combined. Those purchases support about 9 million jobs that pay better wages than jobs that only rely on domestic sales.
   Morneau stressed how free trade has enabled the formation of highly integrated supply chains, citing the example of how transmissions are made for a Ford automobile.
   For example, Canadian scrap-iron chips are shipped to Metaldyne, a company in St. Cloud, Minn., where they are cast into metal forms. The material is then sent back to Linamar, a Canadian auto parts manufacturer based in Guelph, Ontario, and a factory that employs about 560 people, to be machined and assembled. The parts go back across the border for a third time to a Ford plant in Stirling Heights, Mich., where they become part of fully assembled transmissions. And then the completed transmissions gets shipped back to a Ford assembly plant in Oakville, Ontario, where they are dropped into vehicles. Finally, the finished vehicles cross the border to be transported to dealerships in the United States.
   During the question period, Morneau said NAFTA has been mutually beneficial, but there is always room for improvement in any trade relationship. He noted that U.S.-Canada trade is very balanced, notwithstanding price fluctuations in oil markets that impact the value of Canadian oil exports.
   The Canadian government’s goal, he said, is to make sure the new U.S. administration understands the advantages of trade and investment with Canada.
   Addressing business leaders at a luncheon event in Ottawa last week, U.S. Chamber of Commerce President Thomas Donahue touted the vitality of the U.S.-Canada partnership and outlined opportunities to work together to advance North American competitiveness through trade, energy, infrastructure, human capital and supply chains.
   Any renegotiation of NAFTA should be conducted under the principle of “do no harm,” he said. “Let’s preserve, protect and advance the robust trade that supports both of our economies and millions of workers. To address areas open for modernization or improvement, we should insist on doing it in a way that doesn’t disrupt the $1.3 trillion worth of trade that depends on NAFTA.”