Article content continued

The White House is playing hardball

Now the U.S. is looking to revise “origin rules” to push for more auto production to the United States, which would hurt Mexico the most. It wants to undo Canada’s supply management for dairy, eggs and poultry. It wants to eliminate NAFTA’s dispute mechanism, subjecting Canada and Mexico to unilateral import duties. The worst policy would be to put a five-year sunset clause on NAFTA that would create immense uncertainty for cross-border trade.

This “America First” strategy will not improve free trade. Instead it takes us backwards into trade protectionism. Although negotiation outcomes are far from certain, it struck me that Canadians are insufficiently paying attention to the big question: What if NAFTA fails?

There are two main reasons that this question is highly relevant. First, we should understand our “credible threat” in a negotiation: Would it be better to let NAFTA die or, as the Harper memo suggested, agree to terms of a “modernized” NAFTA yielding a worse outcome? Second, we should examine our current policy framework to make sure that our current policies won’t make our job harder in the future to spur growth.

What if NAFTA fails? There are two main reasons that this question is highly relevant

Canada understands it has more to lose than the United States if NAFTA breaks down. The U.S. is the largest economy, worth about one-fifth of world GDP, while Canada is relatively tiny with little more than two per cent of world GDP. Canada therefore does not have much leverage as most of our trade is with the United States: almost $675 billion in exports and imports, or roughly two-thirds of our global trade.