9 million reasons to get a trade deal done with Canada

As U.S. and Canadian officials resume trade negotiations in Washington, it is vital to realize that the United States gains massively from its economic relationship with Canada.

Ending the North American Free Trade Agreement (NAFTA) and moving ahead with only a new U.S.-Mexico trade agreement, as the White House has threatened, would damage the U.S. and Canada. Compared to what is at stake for the United States, the remaining U.S.-Canada trade differences are small and resolvable.

{mosads}The U.S. team should negotiate very earnestly to improve the existing NAFTA agreement in discussions with Canada. Last week’s U.S.-Mexico “agreement in principle” is a good basis from which to work.

If U.S.-Canada talks progress, U.S., Mexican and Canadian officials must still finalize a three-way text and fill in details from the initial U.S.-Mexico agreement. The goal is to finish in September.

New polling data suggests that an increasing number of Americans see trade and NAFTA as important for the U.S. A poll just released by the Chicago Council on Global Affairs finds 82 percent of Americans believe trade is good for the U.S. economy.

Sixty-three percent said NAFTA is mostly good for the US economy — that is up 10 percent from 2017. With these attitudes in mind, consider some key facts about Canada’s economic importance for the United States:

• Canada is the United States’ largest international export market (over $340 billion exported in 2017). On a per-capita basis, our 37 million Canadian neighbors buy much more from the U.S. than America’s other major trading partners;
• Canada is the United States’ second-largest bilateral trade partner behind only China;
• 35 U.S. states count Canada as their largest export market in the world;
• the U.S. has a goods and services trade surplus with Canada ($8.4 billion in 2017);
• Canada is the United States’ largest agricultural export market ($24 billion in 2017), and 19 U.S. states sold over 25 percent of their farm and food exports to Canada in 2016;
• the U.S. sells Canada more services than it buys from it, producing a surplus of $58 billion in 2017, and services trade grew over 240 percent under NAFTA;
• Canada is America’s third-largest supplier of goods, with energy and vehicles as the top two Canadian export sectors;
• Canada is America’s second-largest source of agricultural imports;
• Canada has more foreign direct investment (FDI) in the U.S. than the U.S. has in Canada ($453 billion vs $391 billion as of 2017); and
• sales of services by U.S. affiliates in Canada totaled around $121 billion in 2015, while Canadian affiliates sold around $100 billion in the U.S. that year. 

This massive economic relationship with Canada supports nearly 9 million U.S. jobs. President Trump still threatens to end NAFTA, but a U.S. pull out would have major costs. According a study by Trade Partnership Worldwide, the U.S. could lose up to $48 billion in yearly exports to Canada if NAFTA were terminated. 

The big breakthrough in the recent U.S.-Mexico negotiations was proposed stronger rules on what will make a vehicle eligible for duty-free treatment under a new NAFTA. Yet, those rules only make sense if Canada is included, given the closely interwoven auto supply chains linking the three countries.

As part of this continental production chain, Canada supplies the United States with approximately the same percentage of vehicle imports as does Mexico (including several well-known “U.S.” brands).

Both countries supply the U.S. with over half of all U.S. auto parts imports. In turn, about 71 percent of U.S. auto exports go to America’s two NAFTA partners.  

Tearing these supply chains apart would hurt the competitiveness of U.S. auto production and raise prices for U.S. consumers.

North America’s integration goes beyond the auto sector: Over 50 percent of all intra-NAFTA trade is made up of “intermediate goods” being used as inputs for final production in another country.

This cross border integration is why major business groups are strongly arguing that any new agreement should remain trilateral and include Canada.

This deep integration is evident at the U.S.-Canada border where each day about 400,000 people and more than $1.7 billion in goods and services cross back and forth. It is reflected in the close U.S.-Canadian cooperation in assuring U.S. homeland security that extends from the land border to beyond the perimeter of North America.

The extremely close collaboration with Canada extends to intelligence, defense and international affairs, where the two countries have been allies and partners since World War II. 

For these reasons and more, we should put the remaining trade differences with Canada in the proper context of an enormously important trading and security partner, ally and friend. Canada is not a miscreant to be mistreated, insulted or threatened.

The U.S.-Mexico agreements contain solid provisions that go beyond Canada’s previous commitments, like on low- value, duty-free trade, where Canada can show flexibility.

Canada’s support for its dairy sector has been regularly criticized by President Trump, and Canada should be able to further open its market as it had agreed to do during the Trans-Pacific Partnership negotiations.

But the U.S. actually had a massive dairy trade surplus with Canada in 2017. The U.S. currently protects and supports its own dairy sector and other agricultural sectors, such as sugar for example. A good resolution on dairy should be possible. 

After President Trump was quoted last weekend as saying he would not make compromises with Canada, Prime Minister Justin Trudeau underscored two must haves for Canada: “a dispute resolution mechanism like chapter 19” in the current NAFTA treaty; and an exemption for “cultural” industries, citing the control of media outlets as an example, in order for Canada to protect its “sovereignty” and “identity.”

Canada has been insistent on dispute resolution panels rather than relying on U.S. courts to solve differences over government trade actions since the pre-NAFTA U.S.-Canada bilateral trade arrangement and has been consistent in seeking to protect its cultural sectors.

Over the last year, the U.S. has been insisting on doing away with Chapter 19 and did get Mexican agreement.   Resolving these issues won’t be easy, but it is essential given the high stakes. 

Earl Anthony Wayne is a public policy fellow at the Woodrow Wilson Center, and a former U.S. ambassador to Mexico, among other diplomatic positions.