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Canada Is Stuck in Trump’s Permanent Trade War

The longer negotiations drag on, the greater the economic drag

The events of July 1 regarding renewing the Canada–United States–Mexico Agreement—or USMCA, if I can stick to the American acronym—turned out to be a bit of a nothingburger. By the time the day arrived, everyone knew the United States would not agree to simply renewing the agreement as is, which means that the ten-year annual review mechanism would be triggered, and that is exactly what happened.

Some media reaction, especially in Canada, was apocalyptic, but most in the US took it in stride, as did the financial markets and Congress. Republicans and a good number of Democrats agreed with the decision to continue negotiating, although for very different reasons. Republicans noted important unresolved issues, including Canadian dairy and lumber and Mexican energy and investment. Democrats complained about labour and environment.

All parties, including Democrats who opposed the decision, emphasized the need to continue negotiating, which appears to be precisely what the administration intends to do. The most popular word from all sides was uncertainty. Business craves certainty because it allows them to plan and move forward with their investment and production goals. US president Donald Trump, in contrast, favours a negotiating approach that creates uncertainty because he thinks it gives him more leverage.

There is also suspicion that, in the case of the trade deal, uncertainty is intentional because it will drive companies to invest in the United States rather than Canada or Mexico, but I believe the more likely outcome is that most companies will simply put their plans on hold and wait for the situation to clarify. Investments in new facilities or equipment are made for the long term but are influenced by short-term conditions. If companies don’t know what tariffs or other regulatory requirements they will face in six months or a year, they will usually wait until they have greater confidence about the future. Even companies already located in the US that have substantial exports to Mexico or Canada will hold off on new American investment if they don’t know what their future tariff liabilities will be.

So, what happens now? Trump has been distracted by the war with Iran but is now once again attacking USMCA,........

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