Analysis: Canada doesn’t have to follow Trump’s anti-Mexico stance on trade
By Ian Holliday, Research Associate
January 9, 2017 – Few things are certain about Donald Trump’s impending presidency, but one of the safest bets you could place about the policies of the incoming administration is that they will involve increased animosity toward Mexico.
Trump’s signature policy proposal – a wall along his country’s southern border – has garnered plenty of headlines, but it’s his persistent assertion that Mexico will pay for the wall that could prove more relevant to Canadian concerns.
The Mexican government has repeatedly said it has no intention of paying for the construction of the wall, but that may not be what Trump means by “Mexico will pay.”
The incoming administration has expressed hostility toward free trade agreements, and floated the idea of introducing tariffs on goods imported into the United States. A high tariff on imports from Mexico could raise some revenue for the U.S. government, and if that revenue matched the cost of a border wall, “Mexico” (more accurately “Mexican businesses, and American ones manufacturing goods in Mexico”) would have “paid for it” (more accurately “provided the U.S. government with a new revenue stream at a time when it is also planning tax cuts”).
This is where Canada comes in. A tariff on imports from Mexico would be a violation of the North American Free Trade Agreement (NAFTA), which has governed trade between Canada, the U.S., and Mexico for the last two decades.
Asked in June 2016 what they would like to see happen to NAFTA over the next few years, only one-in-ten Canadians opted for the status quo, while the largest number (34%) said they would like to see the deal “renegotiated,” and another one-in-four (24%) said it should be “strengthened and expanded:”
Of course, there’s likely to be a difference between what Trump means when he says he wants NAFTA renegotiated and what the Canadian public would like to see from such a negotiation. If Trump tried to get rid of NAFTA entirely, he would do so to the dismay of most Canadians.
When asked a binary question in a more recent Angus Reid Institute poll, seven-in-ten Canadians said “we should keep NAFTA, it’s a benefit to us” rather than “we should get out of NAFTA, it’s hurting us”:
It should be noted that the American public has considerably less enthusiasm for the three-nation trade pact. Asked the same question, Americans are split 50-50, with supporters of Trump more likely to say it’s hurting their country than those who backed his opponent Hillary Clinton.
The United States is, by far, Canada’s largest trading partner. It’s in Canada’s interest to negotiate with the Trump administration on changes to NAFTA that will benefit both countries.
But in a worst-case scenario – one in which Trump decides to act unilaterally in imposing tariffs and withdrawing from NAFTA – Canada would do well to look a little farther south for a trading partner.
Fraying relations between the U.S. and Mexico would offer opportunities for a stronger Canada-Mexico relationship, and that’s something Canadians have expressed interest in pursuing in the past.
Asked whether they have a favourable or unfavourable view of Mexico, Canadians are almost as positive on the southernmost NAFTA nation as they are on the United States:
Likewise, almost seven-in-ten Canadians (69%) say their country should work to build a stronger relationship with Mexico, and six-in-ten (61%) view that nation as “a valuable trade partner to Canada.”
As the graph indicates, the U.S. outpaces its southern neighbour on all of these metrics (except “riskiness” for Canadian businesses). It’s worth noting, however, that this survey was conducted before Trump’s election victory – an outcome most Canadians expect to have a negative impact on Canada-U.S. relations.
If the Canadian government decided to respond to a trade war between the U.S. and Mexico by quietly seeking closer trade ties with the latter, it’s reasonable to expect the Canadian public would approve of such a strategy. Indeed, when asked directly whether Canada should work closely with Mexico to combat U.S. protectionism, Canadians are twice as likely to say this is a good strategy as a bad one: