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Trump, Beware: Canada Holds The Cards In NAFTA Renegotiation

Alas, we need them more than they need us. But Canadians need not despair. Our negotiators will have a few cards up their sleeves.

06/21/2017 15:22 EDT | Updated 06/21/2017 15:22 EDT

The mandate of Canada's negotiators will be to work with their counterparts in United States and Mexico to improve the North American Free Trade Agreement. Our negotiators will seek a package of concessions that is as good or better for Canada than the existing agreement.

Alex Wong via Getty Images
U.S. President Donald Trump (R) and Prime Minister Justin Trudeau (L) participate in a joint news conference at the White House on Feb. 13, 2017 in Washington, D.C. (Photo: Alex Wong/Getty Images)

Canada's major weakness is structural. In any trade negotiation the more concessions you can offer, the more you gain. Canada has a population of 35 million people with an average per capita income of $46,000, while the U.S. has a population over 320 million with a per capita income of $57,000. Alas, we need them more than they need us.

But Canadians need not despair. Our negotiators will have a few cards up their sleeves.

First, the U.S. is the demandeur. They asked for a new deal. That puts them at a disadvantage. At various times in the negotiation each party will have to decide whether they are prepared to walk away. A demandeur who walks away with nothing has to live with an undesirable status quo. Canadian negotiators will need to be prepared to call bluff -- after all, the status quo works for Canada, while abrogating NAFTA would hurt the U.S. economy (not to mention members of Trump's cabinet). Even if NAFTA is scrapped, we have the Canada-U.S. Free Trade Agreement to fall back on.

Second, patience is a virtue. Time is not on the side of U.S. negotiators. They have a political calendar with lots of fixed dates. They are going to want to wrap up the negotiations before the 2018 mid-term elections (and the Mexican elections in July). Then they will want the deal signed and ratified by Congress before the presidential election in 2020. That gives Canada an advantage. A little foot dragging can amp up the pressure. Negotiations can be deadlocked for days, if not weeks, by elaborate disquisitions on supply management and inter-provincial trade rules. The negotiations could be further complicated by bringing in competition law, climate change, and human rights.

Third, nothing makes it easier to resist concessions than powerful domestic constraints. The Canadian political system does not have many veto points, but that does not mean there is no resistance to concessions from domestic producers, provinces and lobby groups. A single firm can influence the outcome of negotiations. Already British Columbia has threatened to ban the export of U.S. thermal coal through western Canadian ports in retaliation for softwood lumber duties.

"The Closer" may be too busy fighting impeachment to worry about a trade deal.

Fourth, Canadian negotiators will not want to get caught in the crossfire between the U.S. and Mexico, but that shouldn't prevent them from making few discrete trips to Mexico City to coordinate strategy. They can remind the Mexicans that if they had listened to Canada in the original NAFTA negotiations they'd still have a banking system of their own.

Fifth, U.S. negotiators will hold the negotiations in drab, windowless rooms aimed at making Canadian and Mexican negotiators feel unimportant. Play along. It's all part of the game.

Finally, leave the toughest decisions to the endgame. Those calls will be made at the highest political level. By then, "The Closer" may be too busy fighting impeachment to worry about a trade deal.

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