U.S. President Donald speaks to reporters as he arrives aboard Air Force One at Joint Base Andrews, Maryland, U.S. January 26, 2017.JONATHAN ERNST/Reuters
With Donald Trump, it's hard to tell the difference between a negotiating tactic and a move that marks the end of North American trade as we know it.
For Mexico, they're probably starting to feel like the same thing. Mr. Trump's threat Thursday of a 20-per-cent tariff on all Mexican imports was menacing to the country's economy, and, if the U.S. President follows through, it will kill the North American free-trade agreement.
Now, Canada has to wait and see if NAFTA is truly doomed, and what the Trump administration's real trade intentions are. The new administration probably hasn't worked out the specifics, yet. But one big thing is already clear: Creating chaos for others is part of Mr. Trump's Art of the Deal.
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That tariff on Mexico? Yeah, it's just Mexico at first, but Mr. Trump thinks it should be applied to all countries, Sean Spicer, the President's press secretary said Thursday afternoon. Now, the nations of the world, Canada included, can line up to see if they can get some kind of special break, or exemption.
Mr. Trump whipsawed President Enrique Pena Nieto, and all Mexico. The Mexican President planned to travel to Washington next Tuesday, but instead Mr. Trump tweeted Thursday morning that if Mr. Pena Nieto wouldn't pay for a border wall, he should stay home. Mr. Pena Nieto cancelled. Then, Mr. Spicer told reporters that Mr. Trump had decided Mexico would pay for the wall via a 20-per-cent tariff on Mexican goods.
That's a new level. Mr. Trump had said he will demand NAFTA be renegotiated, or he'll withdraw. But a 20-per-cent tariff isn't renegotiation. NAFTA, after all, sets out rules for tariff-trade, so a 20-per-cent tariff on Mexican goods would mean NAFTA is dead.
Is it just a negotiating tactic? It's hard to tell if anything ever comes out of Mr. Trump's mouth, or his Twitter account, that isn't a negotiating tactic of a kind. The President is probably smiling at sending the Mexicans scrambling. Mr. Trump is willing to spark chaos, and risk damage to the global economy, if he might come out a winner.
It's less clear whether he'll follow through. Incoming Secretary of Commerce Wilbur Ross has said tariffs are a last resort in negotiations; he has talked of Mr. Trump preconditioning Mexico and Canada to make concessions. U.S. industry, including an inter-linked, trilateral auto industry, will weigh in on what they'll lose if NAFTA is demolished.
But Mr. Trump really is sending the world scrambling.
Already, Canada's ambassador to Washington, David MacNaughton, has suggested Canada might cut away from NAFTA partner Mexico to negotiate Canadian interests with the U.S., perhaps separately. Mexican newspapers ran stories indicating that Canada was telling Mexico that they're on their own. Toronto trade lawyer Lawrence Herman thinks they are: He thinks that Mr. Trump will demand so much change in U.S.-Mexico trade that NAFTA is effectively doomed, and Canada now has to prepare for negotiations on a new bilateral trade deal with the U.S.
But there's preparation, and there's jumping the gun. John Weekes, Canada's chief negotiator for NAFTA, said he's been getting calls from people who suggest Canada should pre-emptively pull out of NAFTA, reverting to the 1988 Canada-U.S. free-trade agreement, to distance itself from Mexico.
"I understand the psychology," Mr. Weekes said. They think the Trump administration sees Canada as good guys, "and the Mexicans as a bunch of rapists," so we can do better without them. "But we don't know what the hell [the U.S.] will propose," Mr. Weekes said. "What's the advantage in acting?"
Mr. Weekes said that just going back to the old FTA means Canada would be giving up features such as dispute resolution, not to mention tariff-free trade with Mexico. If Canada and Mexico negotiate new, separate trade deals with the U.S., it will be a hub-and-spoke system that favours the U.S., he said.
But, above all, he said it's too soon to tell. Mr. Trump's administration doesn't yet know what its specific proposals will be, and hasn't even consulted U.S. industry to determine its interests. Why ditch Mexico now? Why not wait for real facts?
What we do know is that we're in for disruption. That might be the ultimate outcome, but it is definitely Mr. Trump's tactic.