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Canada Should Call Trump’s Bluff on CUSMA Trade Talks

With the US economy weakening, Ottawa has more leverage than it thinks

“If Canada wants to agree that we can have some level of higher tariff on them while they open up their markets to us on things like dairy,” United States trade representative Jamieson Greer told a CBC reporter a few months ago, “then that’s a helpful conversation.”

America’s unstable economy makes their hand in CUSMA negotiations weaker than it appears

Canada should stop treating access to the American market as worth any concession

Canadian negotiators should be prepared to walk away rather than accept a future of economic subordination to the US

Helpful to whom? It can feel like a luxury to look past the parade of breathless, Trump-induced headlines and focus on the larger trends. But as one-sided demands from American negotiators mount—from attacking Canadian digital regulations to complaints about provincial liquor-board bans and “Buy Canadian” policies—that broader view is more necessary than ever.

A February report from the US Congressional Budget Office (CBO) underscores what’s at stake as Canada approaches its next reckoning over the Canada–United States–Mexico Agreement in the months ahead. CUSMA governs a trading relationship worth more than $1.8 trillion annually and underpins deeply integrated North American supply chains spanning energy, agriculture, manufacturing, and the auto sector—making it one of the most consequential economic agreements in the world.

But what the CBO tells us should cause Canadians to think long and hard about what we are willing to sacrifice to retain CUSMA. Despite Trump’s bluster and bullying—and despite what seems like a reasonably stable US economy—the American hand is weaker than it looks.

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The CBO warns that America’s ability to meet the interest payments on its ever-growing debt is becoming unsustainable. The basic math is this: a nation’s ability to service its debt is a function of whether its rate of economic growth (G) is greater than the rate of the interest costs (R).

If G is greater than R, a country can sustain its debt. Indeed, if G is substantially greater than R, the costs of servicing the debt can actually go down as a percentage of its economy because the economy is growing faster than its debt costs. In this way, a country can “grow” its way out of debt.

But, if R routinely grows faster than G, problems arise. Slowly at first, then with increasing pace, the country spends more and more of its economic lifeblood to pay the interest. The government is forced to reduce the amount it injects into the economy (social programs, for example) and to increase the amount it takes out of the economy (taxes) just to keep pace with the interest. As it does this, the economy contracts, and so the government must spend even less and take even more. Credit is increasingly restricted, causing the economy to slow ever further, and a vicious cycle sets in.

What the CBO is suggesting is that the US is perilously close to the moment when R overtakes G. The CBO estimates that this death spiral will happen by around........

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