No new trade deal is better than a bad deal

Next Wednesday, July 1, is an important day in the future of the Canada-U.S.-Mexico (CUSMA) free-trade agreement. The deal faces a mandatory review beginning on that date, giving the parties the opportunity to extend the agreement for 16 more years.

Canada and Mexico want to extend the agreement but, even if that doesn’t happen next week — a likely outcome, given recent remarks by U.S. President Donald Trump — the agreement will remain in force and then be subject to annual reviews for the remainder of its term. That said, any party can withdraw from the agreement by giving six months’ notice to the other parties of its intention to do so.

Given those facts, Wednesday is not a life-or-death date in the future of CUSMA. Rather, it is a procedural “checkpoint” that gives the parties years to prepare for the potential end of the agreement.

That possibility explains why Prime Minister Mark Carney has spent the past year working to improve our trading relationships with dozens of other nations. He is trying to ensure that, should CUSMA come to an end, the Canadian economy will be far less dependent on its trade with America, and far less vulnerable to the whims of that nation’s politicians. It is the logical approach under the current circumstances, and failing to take those steps would be gross negligence.

Not all Canadians agree with that strategy, however. Some argue that, given the size and importance of the Canada-U.S. trading relationship, and the millions of jobs at stake on both sides of the border, it is critical that we salvage as much of CUSMA as we can — even if it means making painful concessions to the Americans. They argue that a flawed deal, even if it is worse than the agreement we currently have, is better than no deal.

Carney disagrees. He has repeatedly said he is prepared to walk away from the negotiations with no new deal in order to avoid an agreement that is bad for Canadians. He has also said that he wants CUSMA to return to the state it was in prior to Trump’s inauguration last year, without all the tariffs imposed by Trump since then.

We agree with Carney. Agreeing to concessions such as additional tariffs, the dismantling of our auto industry and the loss of cultural protections would harm our economy, cost Canadian jobs and lead to demands for even more concessions. Even worse, there is ample reason to doubt that the Trump administration can be trusted to honour its obligations under any new agreement.

Another reason for Carney to resist making concessions in order to save CUSMA is the reality that Canada is in a far stronger negotiating position than the Americans publicly acknowledge. Trump has repeatedly claimed that Canada has nothing the U.S. needs, and that he would prefer to terminate CUSMA, but there are many Canadian commodities and products that the U.S. economy depends on.

That includes our oil and natural gas, electricity, uranium, aluminum, nickel, critical minerals, potash and softwood lumber, all of which the Americans would be hard-pressed to purchase elsewhere at better prices. Given the worsening impact of climate change, the U.S. may also become increasingly desperate for access to our water. There is also the question of whether Canada would continue to spend billions of dollars annually on military procurement from U.S. manufacturers, or if it would instead buy those items from other nations.

Viewed from that perspective, Canada has far more leverage in the CUSMA negotiations than it appears. Given that fact, Canada’s CUSMA strategy is likely to continue negotiations beyond the U.S. midterm elections in November, on the expectation that a change in the composition of the U.S. Congress will result in a more rational and reasonable negotiating approach from the Americans.

That may irk some Canadian pundits and opposition politicians, but it is the right strategy under the current circumstances. In this instance, standing our ground and understanding there is no urgency to reach a new agreement is the right approach. It is better to have no new deal than commit to an agreement that is bad for Canada.