The United States under President Trump has been retreating from leadership roles in Asia and Europe. Closer to home, his hot rhetoric about trade with Mexico and Canada is propelling our neighbors to start pulling away.
Two truths here: One is that the benefits of the North American Free Trade Agreement—a three-country deal—have flowed in all directions. The other is that Mexico doesn’t need us as much as it did. And the same may be said of Canada.
“We will not be pushed into accepting any old deal,” Canadian Prime Minister Justin Trudeau said recently, “and no deal might very well be better for Canada than a bad deal.”
That the U.S. hasn’t ditched NAFTA as candidate Trump threatened is the smallest of concessions. Simply calling trade deals “a rape of our country” is enough to get the chess pieces moving, and not to America’s advantage.
Mexico and Canada have been looking elsewhere for economic relationships, and they’re finding them. Both have signed on to the Trans-Pacific Partnership, the huge trade pact that Trump pulled the U.S. out of (for no explainable reason other than TPP has something to do with trade). Though Trump says he’s trying to protect us against China, he failed to recognize that TPP was actually created to help us compete against China, which is not a member.
Canada is now in talks to join the Pacific Alliance—a trade bloc including Mexico, Colombia, Peru, Chile, Singapore, Australia and New Zealand. The United States remains a mere observer.
The world economy has changed since the 1990s, and no amount of presidential bluster changes the reality that America has less leverage than it used to. Mexico and Canada don’t have to swallow the unreasonable demands—some say “poison pills”—that the Trump administration has introduced into the NAFTA talks.
“They are overplaying their hand,” former Mexican trade negotiator Antonio Ortiz-Mena said. “Mexico does have other options. They may not be ideal, but they’re options that weren’t available 25 years ago.”
Most traditional economists don’t obsess over trade deficits, but people who do should know this: The United States ran a $12.5 billion trade surplus with Canada in goods and services in 2016.
Mexico is the second-largest foreign market for U.S. goods. (Canada is the first.) It is the largest market for U.S. corn.
But Trump’s continual bashing of NAFTA has forced Mexicans to play defense. Knowing the game could end in higher tariffs for U.S. farm products, they are engaging with more reliable suppliers.
Thus, Mexico last year imported 10 times more corn from Brazil than the year before. It’s expected to buy still more Brazilian corn in 2018.
Clearly, damage has already been done to U.S. interests. Even if this or a future administration turns friendlier toward trade, new supply networks will have been established, and American producers will have to win back the business.
Canada has also been looking elsewhere. It completed a Canada-European Union trade deal over a year ago. Canadian farmers see America’s retreat from TPP as an advantage and are expanding exports to Asia.
We cannot measure how Trump’s hostile and sometimes racist comments about Mexicans will change Mexico’s willingness to make trade concessions. His threats to deport immigrants brought to this country illegally as children cannot possibly be helping.
Also not boding well for future trade talks, Trump is promoting Peter Navarro, a protectionist who sees trade deficits as inherently evil.
If NAFTA fell apart, the winner would not be the U.S., Mexico or Canada. It would be China. Russia, meanwhile, would quietly smile at the further erosion of U.S. influence—and in Americans’ own backyard, too.