Bill Owens: So Where Is NAFTA Now?

More and more commentators on both sides of the border are indicating that they believe Mr. Trump will withdraw from NAFTA. The Canadian government has undertaken a full court marketing blitz including government ministers to reach out to state governors, state legislators, members of Congress and economic developers in the many states with whom Canada does significant trade.

Some believe that Mr. Trump will feel pressure from the AG community; especially given the strong electoral support he received from many AG states not to terminate NAFTA. Newspapers including the Des Moines Register and The Canadian National Observer are all focused on AG’s potential impact on the President. The Canada Institute at the Wilson Center has also raised the importance of AG’s objections to terminating NAFTA. As a Board Member at the Canada Institute, I pointed out there are few farms in Queens. Mr. Trump in fact, has taken the position in a variety of AG disputes with Canada that have come before him that he will support US producers as he has made clear in the dairy and forest sectors, specifically softwood lumber and news print. In other areas of U.S.-Canada trade issues, including the Bombardier/Boeing dispute, it would appear that Mr. Trump is taking a strong anti-Canadian position which is further evidenced by the failure to reach consensus with Canada and Mexico on any significant issues in the NAFTA negotiations. Speaker Ryan recently said that Canada was the main problem as he localized his discontent with issues related to a very narrow Wisconsin AG concern, apparently completely ignoring NAFTA’s positive impacts.

Canada, on the other hand, has recently taken some strong action of its own by filing a broad WTO complaint that challenges many actions taken by the Trump Administration. The focus of the complaint is on trade remedies that the U.S. employs including imposing countervailing duties, anti-dumping and other technical punitive trade measures. Mr. Trump has threatened to strengthen “made in America” asserting in the NAFTA negotiations that eighty-five percent (85%) of automobiles must be “made in America”. Exactly how that will be defined is as yet unknown. Might Canada also challenge, “made in America” particularly if NAFTA were torn-up. That’s a possibility given there would be little left to lose. This could be a classic win the battle, lose the war for the U.S., both in terms of the WTO and the many American businesses and employees who are NAFTA dependent. What happens if Mr. Trump does withdraw from NAFTA? There seems to be general agreement that there would be a six month window before this decision would take effect, during which time we could see:

1. Congress intervening;
2. The courts intervening;
3. DHS having to determine if the Canadian/American Free Trade Agreement snaps back, or if WTO tariffs would be applicable. DHS would also struggle with the logistics of having a system in place to process imports on day 181. On a practical level, American exporters to Canada and Mexico will likely be faced with tariffs on their products.
4. Many industries, but primarily the auto industry, will have to rethink the supply chain systems that they have developed over the last twenty years.

The process of attempting to predict the actions of President Trump in this regard is much like reading Ouija Board as he launches from topic to topic, frequently inconsistently and with all almost no understanding of the overall economic impacts that NAFTA has had on the United States.
In the coming weeks we will provide some ideas on what Canadian and American companies may be thinking as a way to deal with the termination of NAFTA.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.