Trump’s Fight With Canada Over Nafta Faces New Hurdles

(Bloomberg) -- President Donald Trump's effort to force Canada into signing on to a new Nafta on his terms is facing new hurdles thanks to growing opposition at home to his threat to proceed without the U.S.'s northern neighbor.

Trump's frustration spilled into the open over the weekend as he railed against Canada on Twitter -- as well as its many supporters in both political parties. The president has threatened to leave Canada out of a new trade deal already negotiated with Mexico, but without congressional support he lacks leverage to force Ottawa to make concessions.

Canada's top Nafta negotiator Chrystia Freeland, the foreign affairs minister, will return to Washington on Wednesday for a second week of talks over staying in a revamped pact.

There is no political necessity to keep Canada in the new NAFTA deal. If we don't make a fair deal for the U.S. after decades of abuse, Canada will be out. Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off...

September 1, 2018

“There's going to be a lot of pressure to get a deal with Canada,” said Mark Sobel, a former U.S. Treasury official and now American chairman of the research group OMFIF. “Canada's the main trading partner for many states, quite a bit of our economic fortunes are entwined with Canada.”

The battle with Canada is building as the White House also prepares to roll out new tariffs on products from China that make up some $200 billion in annual trade in the most significant batch of duties yet aimed at Beijing. A public comment period wraps up Thursday and people familiar with the White House deliberations last week said the U.S. president is eager to move soon after that. China has already said it will retaliate.

Trumka Criticism

On Nafta, Trump began his Labor Day holiday on Monday by attacking Richard Trumka, the head of the AFL-CIO, America's largest union umbrella group, who said on Fox News Sunday that “it's pretty hard to see” how Nafta works without Canada. Trump had hoped unions would lean on Democrats to back his approach.

Richard Trumka, the head of the AFL-CIO, represented his union poorly on television this weekend. Some of the things he said were so againt the working men and women of our country, and the success of the U.S. itself, that it is easy to see why unions are doing so poorly. A Dem!

September 3, 2018

European officials are watching the Nafta negotiations closely for a sign of how Trump and his team will approach trade talks with Europe. Those were launched as a result of a late-July agreement between the U.S. president and the European Commission President Jean-Claude Juncker, though that pact also appeared fragile after Trump told Bloomberg News last week that in trade Europe was “almost as bad as China, just smaller.”

The debate over how and whether to include Canada in a new Nafta that must be ratified by Congress illustrates Trump's political isolation in his trade wars, something both Chinese and European officials have noted. It also comes just two months before midterm elections in which control of the U.S. legislative body is at stake and trade has already become a volatile issue.

“Many in China must be viewing the most recent Nafta developments, and in particular the sharp words the president is using against Canada, as another gift from the Trump administration,” said Wendy Cutler, who helped lead trade negotiations with China during the Obama administration and is now at the Asia Society.

In an attempt to gain leverage over the government of Justin Trudeau, the president has threatened to leave Canada out of the revised Nafta and proceed with Mexico alone. The White House on Friday gave Congress the required 90-day notification that it would be signing a revised version of the quarter-century-old Nafta with Mexico and would include Canada “if it is willing.”

The notice had to be sent Friday for Mexico's outgoing government to sign the new deal before it leaves office Dec. 1.

Progress in Talks

Both Canadian and U.S. negotiators insist they have been making progress. But they have also bogged down over sensitive issues related to Canada's highly protected dairy sector and the Trump administration's zeal to eliminate a dispute-resolution mechanism that Ottawa regards as crucial.

That mechanism -- known as Chapter 19 -- allows Nafta members to challenge each other's trade remedy rulings, such as special tariffs levied in anti-dumping cases, before an independent panel. It is seen as a Canadian red line, dating back to 1980s negotiations over a bilateral U.S.-Canada pact that served as a precursor to Nafta as well as the early 1990s Nafta negotiations.

Despite Friday's deadline passing without a deal, both Canadian and U.S. officials insist that Canada could still meet an end-of-September procedural deadline set by Congress. Under congressional rules for passing trade agreements, the administration must publicly release text of the agreement 60 days before any signing, meaning wrapping up the U.S.-Canada negotiations before then could put things back on track.

Trade Tactics

Trump abruptly canceled an outing on Monday, a federal holiday in the U.S., “to make calls specifically on trade and other international issues,” White House Press Secretary Sarah Huckabee Sanders said in an email. She didn't elaborate, and the White House didn't respond to questions about Trump's trade strategy.

The problem for Trump is that U.S. business and farm groups as well as a broad bipartisan swath of legislators say they will oppose any deal that doesn't include Canada. If the AFL-CIO's opposition to a Nafta without Canada holds, it would leave Trump facing opposition by bosses, farmers, workers and politicians -- every major constituency in American trade politics.

The Trump vitriol aimed at Canada over the weekend also put pressure on Trudeau not to bend to U.S. demands even if economists warn a collapse of Nafta could be very damaging to the Canadian economy.

“We are witnessing American divide and conquer, might-is-right tactics at their very worst,” Derek Burney, a former Canadian trade negotiator, wrote in the Globe and Mail newspaper. “When we are confronted with schoolyard bully tactics, the choice is clear. Concede and hope that the behavior will improve, or resist in the hope that rational voices in Congress and business will constrain the president's worst impulses.”

--With assistance from Justin Sink.

To contact the reporter on this story: Shawn Donnan in Washington at sdonnan@bloomberg.net

To contact the editors responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, Alex Wayne

©2018 Bloomberg L.P.

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