The USMCA and Nova Scotia

By Samuel Kirsh (AIMS On Campus Student Fellow) 

While the media space of the past two years has generally been taken up by the roguery of the Trump presidency and the perceived havoc that has been wrought on the global political order, recent developments have pertained to a more pressing matter for Canadians: the renegotiation of North American Free Trade Agreement, or NAFTA. The new, immodestly titled United States-Mexico- Canada Agreement has been published for approval through the legislatures of its respective signatories. Trump’s vow to “get a better deal” for America has started with one of the most well-received trade deals ever implemented, however the result is a document that bears a remarkable resemblance to the document it is replacing. There have been some considerable concessions made on the part of Canada, but overall the real story lies in the shredding of amicable diplomatic relations through a heavy-handed process dominated by the United States.

NAFTA provides security and trade rights to the three major economies of North America, and improved Canada’s ability to challenge the US through dispute arbitration guaranteed in Chapter 19 of NAFTA. In fact, over the course of NAFTA’s lifespan, Canada has used this clause more frequently than the other partners, to combat illegal American trade policies, as well as to protect Canadian lumber industry. Keeping independent dispute arbitration is a key win for the new agreement. Further, the other industries that are protected under the new treaty stand to benefit Nova Scotian industry, particularly the tire industry. Of the $2 billion in tires exported to the US last year, Nova Scotia accounted for just over half, or just below a third of Nova Scotia’s overall exports. The protection of automotive parts and equipment is crucial to protecting one of Nova Scotia’s most lucrative exports. This is reflected in the agreement by guaranteeing that 62.5% of car parts must be manufactured by USMCA partners, ramping up to 75% over the next several years. Another major export from Nova Scotia is lobster and shellfish. Driven by growing Chinese demand and the Comprehensive Economic and Trade Agreement between Canada and Europe, Canadian lobster fishermen benefit in the near term as the China-US trade war heats up: Maine lobster fisheries have been subjected to exacting retaliatory tariffs. As such, Nova Scotian stands to benefit in the foreseeable future while instability temporarily lends them the upper hand. On the systemic level, however, changes appear minimal for the major exporting sectors of Nova Scotia.

Despite the clear positive aspects of USMCA, the manner in which it was negotiated and portrayed has been flawed. Primarily, this was through the campaign promises of Donald Trump to renegotiate a “better deal” for the United States, a premise that is empirically flawed through the economic benefits that the US has reaped from the agreement. Additionally, the new document is not such a far cry from the original NAFTA treaty, and new provisions do not, at first glance, have the potential to radically redistribute income in anyone’s favor. The obtuse process instigated by the United States also undermines the complexly intertwined diplomatic relations with Canada and will likely accelerate Canada’s intention to diversify its trading partners. The Trans-Pacific Partnership is one example, and a bilateral trade deal with China might also be tempting considering the current uncouth resident of the White House. The blunt superseding of American desires and the refusal to discuss existing Section 232 tariffs on Canadian steel and aluminum (both valuable to the US industrial sector) should dampen future economic cooperation without a reevaluation of Canadian foreign policy objectives and mores.

The United States-Mexico-Canada Agreement is sure to cause hair-pulling and head scratching in the near future as the federal government tries to sell its merits to the Canadian public. Despite minor wins in specific sectors, the quid pro quo remains unchanged going forward, likely to no one’s surprise, despite grandiose promises of change to the South. For now, the future of the Canadian automotive, lumber, dairy, and fishery industries can breathe a sigh of relief as dispute arbitration is retained and the US has tied itself in a web of tariffs with an intractable economic adversary. Despite the dairy lobby’s attempt to cry foul of the expansion of import quotas, the real damage will be seen in the years to come as Canada’s foreign economic engagements pay dividends while its biggest trading partner squanders a mutually beneficial relationship.

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