Gilbert Gagné
That is the third publish in a collection on tariffs based mostly on a roundtable organized at Bishop’s College in February 2025. Learn the introduction by David Webster right here and the primary publish by Heather McKeen-Edwards right here. The second publish by Gordon S. Baker seems right here.
Every thing appears to be about tariffs now; how uncovered to potential US tariffs Canada is, and a number of the implications and important points surrounding this. By way of historical past, as Gordon Barker factors out within the first publish on this collection, it was the norm that the majority industrial nations industrialized behind tariffs, they usually had been extra sympathetic to commerce liberalization as soon as they felt they had been able to face exterior competitors. And as Heather McKeen-Edwards has very clearly identified, particularly following the crash of 1929, growing tariffs made the disaster even worse. There are calls to instantly renegotiate the free commerce settlement with the US. But, with a US administration disregarding the Canada-United States-Mexico Settlement (CUSMA) with threats of tariffs, this is able to make no sense.
Learn extra: The Politics of Tariffs
Put up-Second World Battle, the thought, already current within the interwar years, to supply for a liberal financial order, was a lot emphasised by the US. Via the institution of the Basic Settlement on Tariffs and Commerce (GATT), successive rounds of multilateral commerce negotiations regularly lowered tariffs to an nearly negligible degree general amongst industrial nations by the tip of the Eighties. That implies that, with just a few exceptions, tariffs had been already fairly low general between Canada and the US when the Canada-US Free Commerce Settlement (FTA) was concluded.
All of this to say that tariffs had for a very long time not been the principle situation in commerce negotiations and in free commerce negotiations between industrial nations. So the risk from President Trump, to impose tariffs throughout the board of at the least 25% towards Canada and Mexico, brings the world and North America again some six a long time. Why does the US President make such a risk, which may very well be equated with an act of warfare? Clearly, for political positive factors, political positive factors for himself. “American First” is me, myself, and I. If you wish to persuade People and acquire voters, you declare it’s for America first, to “make America nice once more.”
Within the first Trump administration, the President threatened to both break or renegotiate the North American Free Commerce Settlement (NAFTA). As we all know, the Canada-US FTA had grow to be NAFTA, with Mexico on board as nicely. The brand new deal, the CUSMA, was renegotiated with a largely protectionist administration, which was odd. Nonetheless, it made sense, in a method, to renegotiate NAFTA as a result of it was thought-about so elementary for Canada, 75% of our exports go to the US. We’re so depending on the US.
Inside CUSMA, there was for the primary time in a commerce settlement, a clause generally known as the sundown clause. It gives that after six years following the entry into drive of the treaty, it might be topic to both assessment or renegotiation, which for Canada and Mexico, means the chance for the US to reopen the settlement and procure additional concessions. America first requested for a CUSMA that may have been in impact for under 5 years. After all, Mexico and Canada mentioned no. Free commerce agreements are signed with a view to present for certainty, in order that traders and producers know that they’ve free entry to a different market following mutual concessions amongst sovereign nations. However in the long run, Canada needed to agree with the Trump administration. It was agreed that after six years, in case of no settlement to resume it, the CUSMA would nonetheless be in impact for 10 years, exactly to reassure traders and supply for some degree of certainty.
Some folks argue that, with the specter of tariffs, maybe we must always begin renewing the CUSMA immediately. I feel that is silly. In 2020 when the CUSMA got here into impact, after negotiations that resulted in 2018, Canada made important concessions. So did Mexico, with the intention to have certainty that the settlement was going to be revered. If in case you have 25% throughout the board tariffs, the entire settlement disappears. It will be completely ineffective to renegotiate CUSMA with the Trump administration beneath such situations, since you would merely make additional concessions whereas the US may return anytime with additional threats.
In Canada, this thought could be very discomforting. In Realist idea, nations ought to attempt to decrease their vulnerability to different sovereign states. That is one thing it appears Canada had ignored. The nation is far too extremely depending on the US. Gordon Barker talked about that tariffs allowed the US persuade Hawa’ii to be willingly annexed. I feel the identical applies to the risk to make use of financial drive to annex Canada. That’s what President Trump is saying. In his view, Canadians would endure a lot with an across-the-board excessive tariff that they might see that there is no such thing as a different choice than annexation to the US.
Beneath CUSMA, if you’re an investor, the place would you make investments? After all, the principle market is by far the US market. If you’re unsure if Mexico or Canada will proceed to have entry to that market, funding is almost definitely to go to the US. It contradicts the very rationale of a free commerce settlement, however from a protectionist viewpoint, it serves the Trump administration’s purpose.
Whereas the US can also be depending on Canada, up to some extent, all of my colleagues are dismayed by how far this tariff warfare may go. Keep in mind that Donald Trump is unpredictable. What we see is the uncooked train of energy in an arbitrary, non-predictable method. That is exactly what he likes, and that is precisely why Canada has lengthy tried to be an energetic member of worldwide organizations to make sure as a lot as doable the rule of regulation in worldwide relations.
It’s true that till lately, the US was a benevolent hegemon. Usually, it has revered its treaties and handled its allies nicely. With “America First” and “Make America nice once more,” we now see the US appearing as a bully. Ever since Trump has threatened to drive Canada into annexation, few nations have come to the rhetorical rescue of Canada. We haven’t obtained sufficient allies, as a result of Canada had by the flip of the century uncared for its relations with the remainder of the world.
When there have been American tariffs on Canadian aluminum and metal within the first Trump administration, the coalition representing Canadian producers argued that we’re so built-in that there could be sufficient stress from throughout the US for these tariffs to be abolished. However that was not the case in any respect. There was not a lot proof that there was stress.
To complete on a extra cheerful word, there aren’t any huge points, objectively talking, between Canada and the US. The Trump administration is aware of that very nicely. The massive enemy for the US is rising China. We would hope for some reduction when the Trump administration squarely turns its consideration to China. In the meantime, renegotiating CUSMA whereas tariffs are in place is self-defeating.
Gilbert Gagné is Professor within the Division of Politics and Worldwide Research at Bishop’s College, Sherbrooke, Quebec, Canada. His instructing relates principally to worldwide diplomacy and organizations, Canadian overseas coverage and Canadian-American relations. His analysis pertains primarily to the therapy of cultural merchandise in commerce agreements; subsidies and commerce dispute settlement, with a specific emphasis on the Canada-U.S. softwood lumber dispute; in addition to the safety of overseas funding and investor-state dispute settlement.
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