As my colleague Sean Higgins reports, Canadian Prime Minister Justin Trudeau rapidly decided to dance to President Trump’s NAFTA tune, the moment a U.S.-Mexico agreement was announced.
We learned as much on Wednesday when Trudeau announced that “the Americans and Mexicans very much want to try and get things done by Friday and we’re seeing if we can get to the right place by Friday, but as I’ve said all along it has to be the right deal for Canada and that’s what we are staying firm on.” Trump had given Trudeau a deadline to join a U.S.-Mexican trade deal by Friday or face exclusion.
But while Trudeau’s caveat of “the right deal” might sound like he’s playing tough, the opposite is true. In fact, the Canadian chief executive has been outmaneuvered by Trump’s phone-call-announced deal on Tuesday with Mexican President Enrique Pena Nieto and his incoming successor, Andres Manuel Lopez Obrador.
So why is Trudeau, who had until now played hardball with Trump, changing his tune? Because he has little choice. With Mexico agreeing to dislocate from the existing NAFTA arrangement, its leaders illustrated to Canada that they would accept NAFTA’s broader implosion in return for new deals with Trump. Canada cannot accept that outcome because to accept NAFTA’s free trade collapse would be worse for Canadians than for Americans.
[Related: Can the US exclude Canada from its trade deal with Mexico?]
In 2017, Canada ended the year with a $17 billion U.S. trade surplus. Halfway through this year, it has an $8 billion surplus. On net, Trudeau would be losing his nation’s best customers. He also has less economic wiggle room in that Canada’s economy has been growing much more slowly so far this year than the United States’. In short, Canada has decided to get on the trade train rather than be abandoned at Trudeau’s posed negotiating stall.
Trump has good reason to be happy. After all, Trudeau’s blinking reflects broader U.S. momentum as it negotiates new trading arrangements with the European Union and China. Next up, Trump should look to renegotiating the Trans-Pacific Partnership.
