Trump’s CUSMA tactics could make employers act as if it ‘never existed’

Trade policy and tariffs specialist Gary Clyde Hufbauer says U.S. President Donald Trumps's threat not to renew CUSMA "may be just another bargaining ploy." Photo by Aaron Schwartz /Getty Images

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WASHINGTON — The July 1 deadline came and went without a renewal of the Canada-U.S.-Mexico Agreement, as Washington opted instead for the annual review process. President Donald Trump wants to renegotiate the deal to address what he sees as persistent U.S. trade deficits with Canada and Mexico. To understand where CUSMA (aka USMCA) is headed and what it means for Canadian businesses and the U.S. states most exposed to cross-border trade, National Post spoke with trade policy and tariffs specialist Gary Clyde Hufbauer, who previously served with the U.S. Treasury Department, and is now at the Peterson Institute for International Economics in Washington.

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Your latest analysis noted that no agreement to renew USMCA would create “a cloud over North American trade and investment and deprive the USMCA of a key attribute: business certainty.” Now that USMCA is effectively in annual-negotiation mode, what changes economically, compared with a normal long-term trade agreement?

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Hufbauer: As you know, Trump is famous for reversing course. His threat not to renew may be just another bargaining ploy. Once he gets concessions from Canada and Mexico, Trump may decide that the smarter move — for domestic political reasons — is to renew the USMCA.

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But for now, non-renewal is the White House decision. Business firms considering major investments in Canada or Mexico have to accept that reality. If their investment depends on assured access to the U.S. market, firms will want to pause and see how the political landscape shakes out before making a commitment. If the end result of USMCA review is a series of annual negotiations, that’s a new world for the North American economy. Firms will be right to fear that Washington will put endless demands on Ottawa and Mexico City. Those demands will undercut the certainty that business firms rely on.

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Does the annual review process create the same kind of uncertainty as a termination threat, or is it more manageable for businesses and governments?

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Well, outright termination would shock Canadian business firms, since up to now they have discounted Trump’s hostile rhetoric. But an annual review will create a different kind of water torture. Firms will be right to fear that, each year, Washington will put fresh demands on Ottawa and Mexico City. Indeed, some firms might prefer to cut the cord now and make their plans as if USMCA never existed.

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The prospect of 10 years of annual reviews spells 10 years of guessing whether the U.S. market will remain fully open, partially open, or closed. In turn, Canadian firms will have to adjust their contracts, both with their buyers and their own suppliers. This is at least a hassle and possibly a nightmare.

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What leverage does the U.S. gain by keeping the agreement under annual review, and what leverage does Canada lose or retain?

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In Washington’s eyes, the beauty of annual reviews is that they enable the discovery of weak links among Canadian firms and provinces — in other words, the parts of the Canadian economy susceptible to pressure from targeted tariffs or other barriers.  Pressure can force those firms or provinces to cut their prices or reduce their sales to the U.S. market. But sauce for the goose is sauce for the gander. Canada can find susceptible U.S. firms and pressure them to relocate in Canada or simply withdraw from the Canadian market.