Trump on NAFTA: An Offer Canada Can’t Refuse?

By Malcolm Fairbrother*

Chrystia Freeland meets with Mexican President Enrique Peña Nieto

Canadian Foreign Minister Chrystia Freeland meets with Mexican President Enrique Peña Nieto in July 2018. / Presidencia de la República Mexicana / Flickr / Creative Commons

U.S. President Donald Trump’s threat last week to abrogate free trade with Canada while signing a new bilateral agreement with Mexico alone has led many to think that NAFTA – which will be 25 years old on January 1, 2019 – has no future.  But the likeliest outcome remains just a set of fairly modest changes to the agreement.  Much of Trump’s bluster on NAFTA does not reflect the facts in U.S.-Canada-Mexico trade, though Canadian officials will still have to take his threats seriously.  Canadian Foreign Minister Chrystia Freeland, whose government sat out the United States’ renegotiation of NAFTA with Mexico this summer, rushed to Washington after the bilateral accord was announced, launching new talks with U.S. counterparts.  While Trump has said he will make no concessions, Freeland has continued seeking common ground, and looks ready to compromise on at least some issues.

  • The best econometric studies suggest that North American free trade has had disappointingly modest benefits – nowhere near advocates’ earlier projections. But the transition costs of moving to a world without free trade would still be enormously costly for Canada.  The economic and political risk of the highly unlikely, but not completely inconceivable, scenario of losing NAFTA entirely are just too great for the Canadian government to bear.

Canada, which in past negotiations stood up for Mexico on some key issues, now finds itself in the ironic position of looking to Mexico for support.  The two countries are often in a position to benefit from working together, but Trump’s wrath has tempted each to throw the other under the bus – a classic prisoner’s dilemma.

  • In the last few weeks, Mexico decided to give the U.S. what it wanted: most importantly, protectionist rules of origin for autos and textiles, and some enhanced intellectual property rights. Mexico calculated that, compared to Trump’s threats not long ago to kill NAFTA in its entirety, these concessions were a modest price to pay to keep the agreement alive.  Also importantly, Mexican leaders appear to have avoided a national humiliation of epic proportions – putting an end to Trump’s dream of getting Mexico to pay for the wall he wants to build on the border.
  • Looking for a much-needed “win,” Trump has now made an offer he thinks Canada can’t refuse. His wish list covers things Canada specifically fought hard for in the original free trade talks back in the 1980s and 90s, including protections for Canada’s cultural industries and agricultural supply management programs, and what Canada’s trade minister said in 1992 were “the vitally important dispute settlement provisions” of Chapter 19.  Now, just as Canadian opponents of free trade forewarned in the 1980s, Canada’s economy has become so enmeshed with that of its much larger neighbor that the government cannot say no to the demands of an aggressive administration in Washington.

Yet the situation does not spell disaster for U.S.-Canada trade or for Canada itself.  Trump’s claims notwithstanding, the U.S. Congress has final say over U.S. trade policy, and most of its members (with business lobbyists whispering in their ears) recognize that severing the many economic ties built up between Canada and the United States over the last quarter-century would be unnecessarily disruptive and costly.  Freeland and her negotiators will know that Trump’s threat to kill free trade is not really credible.

  •  Even caving on all of Trump’s demands would not be catastrophic for Canada. Contrary to Trump’s zero-sum perspective on trade (like on everything else) as an international battleground, most of the important conflicts with respect to trade are actually within countries.  Canada’s supply management system favors the country’s producers at the expense of consumers, for example, just as do strict rules of origin for U.S. textiles manufacturers.  So while the transition costs of dismantling free trade in North America would be substantial, the impacts of the changes Trump is proposing would be tolerable to all three countries – even if some make no sense (the sunset clause); are just giveaways to specific industries (stricter patents for pharmaceuticals); or favor some industries at the expense of others (U.S. lumber producers and U.S. home builders, respectively, as regards the possible elimination of Chapter 19).  For Canada’s government, the heaviest costs of compromise will be political: Justin Trudeau’s Liberal government will have to choose which bitter pill to swallow, as any concessions will lead to angry recriminations from one domestic constituency or another.

September 7, 2018

* Malcolm Fairbrother is Professor of Sociology at Umeå University and a researcher at the Institute for Futures Studies, both in Sweden.  He is originally from Vancouver, and has been a visiting researcher at multiple institutions in all three countries of North America. He has also participated in the Center’s North America Research Initiative.

Salvadoran Gang Truce: Opportunities and Risks

By Héctor Silva, CLALS Research Fellow

President Funes of El Salvador | Photo by: Blog do Planalto | Flickr | Creative Commons

President Funes of El Salvador | Photo by: Blog do Planalto | Flickr | Creative Commons

Despite the general agreement that the truce between El Salvador’s two main gangs, MS-13 and Barrio 18, has lowered the homicide rate dramatically – from 14 killings a day in 2011 to some 5-6 in 2012 – many serious challenges persist. The truce was brokered by a former guerrilla commander and a Catholic bishop and, after two months of denying a government role, Security Minister General David Munguía Payés acknowledged that his office was the mastermind.  It is now entering a second stage in which six municipalities, ruled by both the governing FMLN and the rightist opposition party ARENA, have pledged to join the initiative. This new stage involves local ad hoc prevention plans aimed at gang members’ families and youth at risk. The truces have become the principal security policy of the Funes administration.

The lack of transparency around the planning and implementation – above all the origin of the initial pact –has fueled skepticism among journalists, politicians and the general public, and polling has not shown wide support for the truce.  The United States has become one of the fiercest critics of the initiative, with its first official reaction a few days after Salvadoran electronic news outlet El Faro revealed details in March 2012 of secret negotiations between the gangs and the Salvadoran intelligence service. U.S. Under Secretary of State María Otero, visiting San Salvador, declared that the gangs must disappear, suggesting disapproval of the appeasement implicit in secret talks, and U.S. law enforcement officials have always been privately skeptical.  The Treasury Department is helping local American police departments attack MS13’s financial networks, which some in San Salvador interpret as a political signal of Washington distancing itself from the truce – an ironic twist given that Munguía Payés was installed largely because of U.S. pressure.  The stakes were raised last week when the State Department issued a warning to travelers to El Salvador, expressing for the first time in writing doubts about the truce.

The Salvadoran state and society face a complex road ahead.  The reduction in the homicide rate is, of course, welcome, and opposition to the second stage of the plan, the municipal sanctuaries, will be muted in a preelectoral year.  (The ARENA candidate for President, Norman Quijano, has remained skeptical but seems likely to jump on the bandwagon.) But with its ambiguous public stance on the truce despite its Security Minister’s political commitment, the Funes administration has not pledged to fund the second stage of the truce, and it seems very unlikely that the United States will be stepping in.  Another factor is that while El Salvador´s security operations are constrained by the truce, other important problems – such as extortion, drug trafficking, impunity and corruption – remain untouched. Furthermore, evidence is slowly emerging that the organized crime rings are using the circumstances to expand their influence and take advantage of their relationship with some of the gangs’ most violent cliques to enhance trafficking routes. Washington’s skepticism about the truce is valid and should be followed up with an emphasis on the underlying causes of El Salvador’s ills.