Canada stands firm against US pressure

“Blame Canada”, went the satirical song from the celebrated animated South Park film of 20 years ago, as the mothers of the USA gathered to decry the moral degradation wreaked by the sinister neighbour to the north.

As he has done before, Donald Trump has turned satire into reality. His outbursts at the G7 meeting last weekend took aim at an array of countries. Most striking was the opprobrium he reserved for the Canadian hosts and, specifically, Justin Trudeau, the prime minister, whom Mr Trump derided as “dishonest and weak”. The US president repeated the allegation that Canada is running a huge surplus with the US — bilateral trade including goods and services is in fact roughly balanced — and cited high tariffs against dairy imports.

Wednesday’s announcement that Canada, the US and Mexico will jointly host the World Cup in 2026 (after Mr Trump has left office) will not alleviate the current tensions. The omens for a peaceful and beneficial resolution of the renegotiation of the North American Free Trade Agreement by the three countries are not propitious.

There is the odd shred of truth in Mr Trump’s accusations. Canada does run an expensive “supply management” system that limits dairy output by quota and keeps out foreign competition with very high tariffs. Still, its overall trade-weighted average goods tariff is 3.1 per cent, not much above the US’s 2.4 per cent, and Nafta gives the US privileged access to the Canadian market. The idea Canada’s trade policy is to blame for the US’s overall deficit is ludicrous. Moreover, cross-border interweaving of supply chains, particularly in cars, has been of great benefit to US car companies and consumers alike.

Hitherto, trade disputes between the US and Canada have been restricted to a few protracted but limited issues, such as softwood lumber. Elevating that tension to a major conflict, first with the steel and aluminium tariffs and potentially involving autos, could inflict serious damage on Canada’s economy.

Discussions over Nafta between the US, Canada and Mexico were already struggling. On top of proposals for highly restrictive rules of origin, which would have inflicted profound damage on car supply chains, the US has suggested a sunset whereby all provisions of the agreement would automatically expire and require renegotiation every five years.

Rightly, Mr Trudeau has rejected this, or at least a strict version of it. The US proposal would subject commerce within the bloc to permanent uncertainty, deterring any sensible company from building substantial supply chains.

If Mr Trump abrogates Nafta, it could create severe short-term disruption. But it is surely better to hold out for a return to more reasonable trade policy in the medium term than to lock Canada into an agreement that could indefinitely distort commerce with its largest trading partner.

Fortunately for Mr Trudeau, the current domestic political climate backs his tactics of defiance. Canadian politics can be as bitterly partisan as any, but the Conservative opposition has rightly swung behind the prime minister. It has supported the government’s decision to retaliate against Mr Trump’s steel and aluminium restrictions with tariffs of its own.

There are no obvious ways to deal with Mr Trump, but Canada and Mr Trudeau have hit on one of the more principled ones. It will take political nerve to hold the line. But refusing to give in is likely in the longer term to have a higher economic pay-off than immediate capitulation.

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Canada stands firm against US pressure

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