As it turns out, showing people a picture of your Chevy Impala isn’t the best way to go about repairing fraught relationships on the way to renegotiating complex trade agreements.
The week started with progress on a bilateral trade deal between the U.S. and Mexico and now, it’s ending with a breakdown in talks between the Trump administration and Canada, leaving the future of NAFTA in doubt.
To be clear, the deal Trump struck with Mexico on Monday was tenuous at best, considering it would likely need Justin Trudeau’s support to get any traction or otherwise garner support on Capitol Hill.
Canada has been absent from the negotiations for weeks and Monday’s deal, while positive, raised at least as many questions as it answered. “We believe this is intended to accomplish two goals”, Goldman wrote on Monday evening, referencing Trump’s express intention to characterize the deal as the “termination” of NAFTA. “First, the President has long discussed the potential termination of NAFTA and doing so would allow for a sharper break with the prior agreement from a political perspective”, the bank continued, adding that it also “presents Canada with a ‘take it or leave it’ choice.”
Larry Kudlow did his best to introduce some antagonistic rhetoric into the equation on Monday, telling CNBC that “if we can’t get a good strong fair deal with Canada, the U.S. might have to resort to auto tariffs.” That would be Larry Kudlow the self-described “free trader”.
Still, the Trump administration was aiming to get Canada on board before the holiday weekend, but if the idea was to pressure Trudeau with a “take it or leave” approach (to quote Goldman), he’ll “leave it” – at least for now.
“Trade negotiations between the U.S. and Canada broke off with no agreement before the Friday deadline set by the Trump administration,” WSJ reports, citing people familiar with the matter. “The failure of the two countries to bridge their differences this week means that President Trump is expected to send a formal notice to Congress later Friday stating that he is still intends to sign a revised version of the North American Free Trade Agreement by late November.”
Apparently, Trump will tell lawmakers he is ready to move ahead with the Mexico-only deal to replace NAFTA.
“President Trump today notified Congress of his intent to sign a trade agreement with Mexico – and Canada, if it is willing – 90 days from now,” Lighthizer said in statement. Here’s what the USTR said about Canada:
We have also been negotiating with Canada throughout this year-long process. This week those meetings continued at all levels. The talks were constructive, and we made progress. Our officials are continuing to work toward agreement. The USTR team will meet with Minister Freeland and her colleagues Wednesday of next week.
We’ll see how it goes, but as far as this week was concerned, the writing was on the wall. Trump’s comments to Bloomberg on Thursday regarding the prospect of tariffs on European autos clearly indicated he is not in a conciliatory mood and subsequently, the Toronto Star released off the record remarks that were extremely inflammatory with regard to Canada. You can read the whole story on that here, but this was the (bad) punchline:
Off the record, Canada’s working their ass off. And every time we have a problem with a point, I just put up a picture of a Chevrolet Impala.
It looks like Canadian Foreign Affairs Minister Chrystia Freeland was not impressed with Trump’s Chevy. Early Friday, she indicated that Canada was not prepared to sign a deal that wasn’t in the best interests of the country.
Following the Star’s reporting, Trump lashed out at Bloomberg. “Wow, I made OFF THE RECORD COMMENTS to Bloomberg concerning Canada, and this powerful understanding was BLATANTLY VIOLATED”, the President tweeted, before delivering the verdict:
Oh well, just more dishonest reporting. I am used to it. At least Canada knows where I stand!
Yes, “oh well,” just a breakdown in discussions centered around rewriting one of the world’s most important trade agreements.
As a reminder, here’s what’s at stake from a BIS paper published this week:
The paper finds that losses from revoking NAFTA would be widespread, given the interconnected nature of production in the three countries. Any benefits from reduced foreign competition would be offset by higher prices for imported intermediate goods and higher tariffs on exports. If tariffs and other trade barriers default to international norms, GDP would decline by 0.22% in the United States, 1.8% in Mexico and 2.2% in Canada. Total combined losses would be about US$ 99 billion a year. Real wages would fall in all Canadian provinces and Mexican states, and in all but one of the 435 US Congressional districts. Automotive workers would be hardest hit in Mexico and Canada; in the United States, it would be workers in oil refineries and coke production who stand to lose most. If tariffs increase but non-tariff trade barriers remain unchanged, annual combined economic losses would be less than US$ 5 billion. Most importantly, almost all regions in North America would see lower real wages in either scenario.
Sounds good, right?
Talks will apparently resume next week and you can probably look forward to all manner of Twitter balderdash from the President over the weekend.