First came the jolt—not unexpected, yet still jarring—of the bluntly protectionist rhetoric of Donald Trump’s inauguration speech. “We will follow two simple rules,” the newly sworn-in president vowed. “Buy American and hire American.” But then, outside this week’s special meeting of Prime Minister Justin Trudeau’s cabinet in Calgary, came soothing words from a visiting Trump adviser, Stephen Schwarzman, head of the mighty Blackstone Group investment company. “There may be some modifications,” Schwarzman said of the Canada-U.S. economic relationship, “but basically, things should go well for Canada.”
Against the backdrop of those apparently contrasting messages—America-first stridency from Trump, America’s friendly reassurance from Schwarzman—it’s hard to be sure what sort of threat Canada faces. Still, Maclean’s talked to three trade experts to gain insights into what’s possible. All three, quite understandably, stressed the unknowns. But they were able to point to why Trump might feel constrained, and how past friction between Ottawa and Washington offers clues about what might be in store.
There are two closely related policy fronts to watch. The first is traditional buy-America policies designed to limit the ability of Canadian companies, and other foreign firms, to compete for a piece of the massive U.S. infrastructure spending projects Trump has pledged to finance. It’s happened before. The American Recovery and Reinvestment Act of 2009, championed by then-president Barack Obama’s administration, required U.S. steel and iron to be used in public works projects.
Ottawa fought for Canadian steel to be allowed in some of those U.S. infrastructure projects, and won a partial deal in early 2010. But Scott Sinclair, director of the Canadian Centre for Policy Alternatives’ trade and investment research project, says that was a modest victory. “The exemptions that Canada got in the end were pretty paltry,” Sinclair said, adding that, with Trump in power, “Canada is almost certain to face buy-America provisions on U.S. infrastructure spending.”
There are, however, some limits on how much government procurement Trump can put out of bounds for non-American firms. The U.S. is part of the World Trade Organization’s Agreement on Government Procurement, which applies in 37 U.S. states with a wide array different rules. It’s not easy to sort out, but Andrea Bjorklund, a McGill University law professor and expert on trade law, said what is clear is that the stakes are high for powerful American private-sector players.
“If the U.S. government backed out or amended its commitment to this agreement, U.S. companies would lose access to government procurement contracts in countries that have signed the agreement,” Bjorklund said. “U.S. industry stands to lose a lot internationally even if they gain something domestically.”
So on conventional buy-America measures, Trump can certainly act—as previous presidents have—but within limits, unless he decides to sacrifice lucrative U.S. access to foreign markets. What about radically changing the North American Free Trade Agreement, or even exiting the 23-year-old Canada-U.S.-Mexico pact altogether?
Matthew Kronby, a trade lawyer with the firm Bennett Jones in Toronto, predicted that Trump wouldn’t withdraw outright, opting instead to try to negotiate better terms on specific points. He said Trump will likely try to change the pact’s dispute-settlement rules, which allow Canadian and Mexican interests, both governments and companies, to challenge U.S. protectionist measures before binational panels, instead of having to try to overturn American policy in American courts.
“Having access to the NAFTA dispute-settlement mechanism has been useful, for example, in past softwood lumber disputes,” Kronby said, pointing out that Canadian lumber exports to the U.S., a perennial source of friction, are again in dispute this year.
Another worry, he said, is that Trump’s negotiators might take aim at “rules of origin” regulations under NAFTA. The most important of these is the requirement that 62.5 per cent of the value of cars must originate in Canada, Mexico or the U.S. for them to be sold tariff-free in the NAFTA zone. Trump’s main aim might be to allow fewer offshore parts, or require more American content, in Mexican cars—but Kronby warned that Canada’s auto sector could end up as “collateral damage.”
As well, Kronby noted that Trump’s choice of lawyer Robert Lighthizer to head the U.S. Trade Representative office is ominous. He called Lighthizer “no fan of Chapter 19,” the section of NAFTA containing the dispute-settlement rules that most rankle some American corporations. Sinclair also flagged Lighthizer’s history as troubling. Lighthizer, now 69, worked under Ronald Reagan’s administration in the early 1980s, helping put intense pressure on Japan to “voluntarily” restrain exports to the U.S.—the sort of demands Sinclair said Washington might again make of countries that sell into the American market.
Buy-American restrictions are almost certainly in the cards. A bid to change the terms of NAFTA is a safe bet. Pressure for involuntary export restraint is possible. Seen that way, the trade threat posed by Trump looks seriously worrisome, but perhaps manageable. Trump is a massive unknown quantity, however, and with so many policies in play, unexpected consequences are a distinct danger. So Kronby said he is not taking much comfort from Schwarzman’s calming tone. “There are areas that could play out as he describes, but I’m not completely sanguine,” Kronby said.
Then there’s the underlying question of Trump’s true nature. Is he the blustering unilateralist of his inaugural address? Or the pragmatic businessman he sometimes chooses to present himself as? If it’s more the latter, then Bjorklund said Canada might go to the bargaining table reasonably looking to gain something back for everything Trump extracts. “I do think president Trump prides himself on being a deal-maker,” she ventured.
Like every conversation about Donald J. Trump, this early discussion about his buy-American stance inevitably turns, and pretty quickly, from trying to assess his policy options to guessing about his psychology. Experts can tell us about rules of the trade game. Nobody knows to what degree Trump intends to play by them.