Why Trump and Trudeau don't see eye-to-eye on NAFTA

The US president has called the agreement the "worst trade deal ever approved" by the United States, while the Canadian prime minister says NAFTA brings billions of dollars across the US-Canada border every day. 

President Trump has said NAFTA is “the worst trade deal ever approved” because it unfairly benefits Mexico. But Canada’s prime minister reminded Mr. Trump and the rest of America that their neighbor to the north has a different view of the 23-year-old pact. 

“We’ve got auto parts criss-crossing the border six times before they end up in a finished product,” Justin Trudeau said in an interview that aired on NBC’s “Today” show on Thursday, part of a campaign to hold Trump to his promise to merely “tweak” the terms of US-Canada trade under the North American Free Trade Agreement.

Since his presidential campaign, Trump has vowed to tear up the agreement between the three nations, hurling most of his disapproval at Mexico. But Mr. Trudeau engaged in a counter-campaign this month – attending a Broadway musical with Trump’s daughter Ivanka on Wednesday, and visiting energy executives in Houston last week – and painted a very different portrait of international trade.

Trump, who proclaims an “America First” view, often talks about winners and losers. According to Trump, America has been a loser under NAFTA because automotive production (and jobs), for instance, have declined in comparison to Canada and Mexico. But Trudeau's view is that the North American trade model works and – whether it involves cars, electronics or ideas – is an interwoven network that is blind to borders.

“They’re talking about two different things. Or maybe it’s a matter of two different examples of cognitive dissonance,” says Robert Bothwell, a Canadian history professor at the University of Toronto, whose research includes the United States. “To begin with, Trump is talking about Mexico, though a couple of his appointees have mentioned Canada. Trudeau is talking bilateral, ignoring Mexico, in the hope that in Trump's dealing with Mexico Canada does not become collateral damage. Trudeau will stick to practicalities as far as possible, to concrete examples.”

Trudeau also told NBC’s Tom Brokaw on Thursday that more than $2 billion in products crosses the US-Canada border every day, and NAFTA has been “improved a dozen times over the past 20 years.”

"There's always opportunities to talk about how we can make it better,” said Trudeau.

But, he added, “it has led to a lot of great jobs for a whole lot of people on both sides of the border and I very much take him [Trump] at his word when he talks about just making a few tweaks.”

Trudeau's comments come a week after he and James Gordon Carr, Canada's natural resource minister, visited energy executives in Houston to repeat their opposition to a Republican proposal for a border-adjustment tax that favors exports over imports, an action Trudeau said would hurt both the Canadian and American economies, according to Reuters.

Anxiety is high among Canadians over talks of the renegotiation of NAFTA, Mark Warner, a Toronto-based trade lawyer, tells The Christian Science Monitor.

“Because of the importance of that trading relationship to Canada, everyone is on tenterhooks,” he says. “We listen to every comma splice from anyone in the administration or Mr. Trump himself.”

There’s no question Canada has benefited from NAFTA, started in 1994 under Democratic President Bill Clinton. Signed by Mr. Clinton’s Republican predecessor, George H.W. Bush, two years earlier, NAFTA eliminated most tariffs on products traded between Canada, Mexico, and the US. Over time, the agreement has led to further lowering of regulations and other non-financial barriers.

From 1993 to 2013, Canada saw its exports grow from $11 billion to $346 billion and US investment grow from $70 billion to $368 billion, according to the Council on Foreign Relations.

But Canada has not been the only country to profit from the agreement. US exports have tripled with Canada, growing more rapidly than its trade with the rest of the world. Along with Mexico, Canada has become one of the two largest destinations for American exports.

For example, NAFTA helped transform the automotive industry. Before the agreement went into effect, the North American automotive sector was insular and regional and most vehicles were produced only for the markets where they were sold, Michael Robinet, managing director of Michigan-based IHS Automotive, told the Wharton School of the University of Pennsylvania.

“It used to be, before NAFTA, that what was produced in Canada was for sale in Canada, and it was a much smaller market,” said Mr. Robinet. “NAFTA has driven down our costs,” making it possible for an integrated continent – a single manufacturing platform – to become a major force in global automotive trade. In other words, it created a North American auto industry.

In the process, however, the share of all North American auto jobs fell in the United States from about 65 percent in 2000 to 53 percent in 2012, according to the University of Pennsylvania. This has come as American, Japanese, and South Korean firms have invested in world-class factories south of the border.

This shift has given ammo to Trump’s message that Mexico has been winning, so we’ve been losing. That’s an essential Trump message, noted Peter Grier and Simon Montlake for the Monitor in January, citing Trump’s inaugural address.

“We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength,” said Trump on Jan. 20.

Trump’s stated position is to tear up NAFTA, an action that would, by default, revert US-Canada trade back to a 1989 agreement, which was never repealed.

Trudeau, meanwhile, has called Canada an “essential partner” of the United States.

"Relationships between neighbors are pretty complex, and we won't always agree on everything," he said when he visited the White House in February, adding that at the end of the day, he believes the US-Canadian relationship will remain strong, according to USA Today.

Yet, the Trump administration and the Trudeau government agree that parts of NAFTA can be improved upon. One aspect many economics and business analysts argue should be renegotiated or updated is the way that the agreement affects digital industries and e-commerce.

But Marc Busch, a professor of international business at Georgetown University School of Foreign Service, tells the Monitor that during any negotiations, it’s important that they be done with the global, interconnected world of 21st-century trade in mind. 

“The problem is we’re supposed to be discussing 21st-century trade deals, but it’s mired in 19th-century politics with winners and losers. Winners and losers defined as what?” he says. “Trade deals aren’t about efficiency gains. They are about the ability to pinpoint whether, for example, a US aftermarket automotive plant is going to be hurt or benefit.”

Trump has made it clear where he stands on this issue. Trudeau is concerned enough to be making his case in America.