When the once-unthinkable suddenly seems all-too-possible, there’s a normal human tendency to look for a silver lining in that cloud. And so it is now that the deal underpinning Canada’s biggest trading relationship appears to be hanging by a thread.

The story is far from over, but this may well be the week that the North American Free Trade Agreement (NAFTA) suffered the blow that leads to its eventual demise, most likely early next year. With the Trump administration pushing outrageously protectionist demands, Canada and Mexico have no choice but to make clear their own bottom lines and prepare for life after NAFTA.

There was always a very real chance it would come to this. No country can afford to be rolled by a bully across the street who isn’t genuinely interested in working out a deal that’s good for both sides. And that’s the position Donald Trump is putting Canada in as his negotiators relentlessly pursue his “America First” agenda.

We are now hearing from various quarters that if things fall apart it may not be so bad after all. Canada’s chief negotiator in the original NAFTA negotiations, John Weekes, said this week that “it wouldn’t be the end of the world” if the deal disappears. And in the Star, former NDP leader Ed Broadbent wrote optimistically that there could be “major new opportunities” for Canada in a post-NAFTA world.

That’s all good to hear. There has been a tendency since the deal came into effect almost a quarter century ago to exaggerate both its benefits and shortcomings. The truth is that the overall effects of globalization and rapid technological change have been much bigger factors in shaping our economy – for both good and ill. Fixing NAFTA or scrapping it won’t change that.

But there’s no point in minimizing the potential costs involved if it all goes south. It’s not just the short- to medium-term effects on the economy if NAFTA ends. In a report last July the International Monetary Fund said that could be as little as a 0.4-per-cent reduction in Canada’s GDP, a number cited by Broadbent. (It’s worth noting, however, that the IMF figure is on the low end of estimates by economists; others figure the hit to Canada could be as big as 2.5 per cent of GDP, which would be painful.)

There’s a bigger picture, though, one hinted at by Foreign Minister Chrystia Freeland this week as she spoke at the end of the most recent, acrimonious round of trade talks in Washington. She said the American side has brought forward proposals that “turn back the clock on 23 years of predictability, openness and collaboration under NAFTA.”

Freeland called that “troubling,” an understatement if ever there was one. Who can doubt that introducing such uncertainty into the mix would hurt both the Canadian and U.S. economies, which are doing pretty well at the moment. And there’s no reason to believe that ending NAFTA would bring back any of the manufacturing jobs lost in both countries over the past two decades. It will still be much cheaper to operate a factory in China or any number of other low-wage countries.

And beyond the fate of NAFTA itself are the wider implications of Trump’s drive to put “America First.” As he interprets it, it amounts to withdrawing the United States from all sorts of involvement with the rest of the world on the grounds that other countries have been taking America to the cleaners for decades – in trade, in military alliances, in multilateral arrangements of all kinds.

Aside from NAFTA, he has pulled the U.S. out of a potential trade deal with much of Asia, the Trans-Pacific Partnership; withdrawn from the global agreement on climate and the deal to limit Iran’s nuclear ambitions; called into question Washington’s role in NATO and the United Nations; and on and on.

This is the biggest American retreat from the world since the 1920s, when Washington embraced isolationism, much to the detriment of the entire world. The gap is being filled by other, more confident powers, notably China. It’s no accident that The Economist this week singled out that country’s president, Xi Jinping, as “the world’s most powerful man” – a label long reserved for U.S. presidents. Now, it wrote, the president of China “walks with a swagger abroad” while Trump’s America “is pulling back and creating a power vacuum.”

What does this mean for Canada? For one thing, Ottawa must certainly stick to its guns on issues of principle, no matter how tough the talks become. Those include, for example, maintaining a credible independent dispute settlement mechanism so that a powerful partner like the U.S. cannot simply interpret trade rules to its own advantage.

It also means at this point holding firm on some issues where it might actually be in Canada’s best interest to compromise – such as our protectionist marketing board policies. Canadian consumers would benefit from rolling those back, but it can’t happen with Washington holding a gun to Ottawa’s head.

It means redoubling efforts to find other trade partners and lessen Canada’s reliance on the United States. That has been notably unsuccessful in past decades: when Justin Trudeau’s father Pierre was prime minister way back in 1971 he famously launched a so-called “third option” initiative to diversify markets in the face of protectionist moves from the Nixon administration. At the time, 69 per cent of Canadian exports went to the U.S.; now the figure is up to 76 per cent – and Canada’s economy is even more dependent on trade than it was then.

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Nonetheless, Trump’s willingness to see NAFTA sink should light a fire under Ottawa to do whatever it can to wean Canada off its dependence on the U.S. For one thing, it should support efforts to revive the TPP agreement without American participation. If successful, that would give Canada more access to important Asian markets, including Japan.

There’s nothing Canada can do about Trump. Like the rest of the world, we’re stuck with him for the time being. But we can use this moment to remind ourselves of the pitfalls of leaning too heavily on one increasingly unreliable and inward-looking partner.

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