MADELAINE DROHAN: VALUE ADDED

Trade protection rhetoric in U.S. worth a listen

Aug. 3, 2007

When the Democrats won control of the U.S. Congress after mid-term elections late last year it was widely assumed that American trade policy would become more protectionist.

In rhetoric, at least, this has happened. There are an estimated 50 bills before Congress aimed at limiting access to the U.S. market. They are supported not just by Democrats, but also by some Republicans as well.

For the moment, China is the favourite whipping boy, because of its massive trade surplus, low currency, and lax regulation of product safety. India comes in for its share of attacks because its educated workforce and burgeoning tech industry allow U.S. corporations to move offshore jobs that were formerly done by U.S. workers.

And Canada? Traditionally, we have not attracted the same level of ire from U.S. politicians as China. That does not mean that we have not been hit by retaliatory trade measures. The dispute over softwood lumber comes to mind. But generally speaking, trade in goods across the border is relatively smooth, due in part to the North American Free Trade Agreement, which came into effect in January 1994.

Which is why we should be taking more notice of calls being made by the leading Democratic candidates for presidential nomination to renegotiate the NAFTA. Hillary Clinton, the current front runner, Barack Obama, and John Edwards, have all said they would renegotiate the trade deal between Canada, the U.S., and Mexico.

They haven't put a lot of meat on the bones of their argument, so it's not completely clear what changes they want and whether renegotiation is even possible. In an interview with Time Magazine earlier this year, Clinton talked vaguely of labour standards and better enforcement of trade agreements. However, she talked specifically about how farmers in New York state, which she represents, have trouble getting their goods into Canada. While trade is good for the U.S., she concluded, she did not want Americans to be "played for suckers."

Obama's rationale for renegotiation seems to be linked to labour standards in Latin America. He says he wants a deal that reflects the interests of workers and not just corporations. In this, he appears to have Mexico, rather than Canada, in his sights.

As for Edwards, he wants to see labour and environmental provisions put into the body of the treaty. They are currently side agreements.

It is not clear where Rudy Giuliani, the Republican front runner and former mayor of New York, stands on the issue of free trade. A spokesman has said the candidate supports free trade, but wants to make sure countries trade fairly. That could mean anything.

Should we be concerned?

There are other Republicans calling for NAFTA to be revisited, although their concerns are somewhat different, and for the moment they appear to be a fringe group. Ron Paul, a representative from Texas who is running for the Republican presidential nomination, is campaigning against what he says are plans for a 10-lane NAFTA Superhighway running from Texas to Minnesota that will displace millions of people and will cut the U.S. in two.

According to Paul, the highway is all part of the Security and Prosperity Partnership, the three-way agreement made in Waco, Texas, in 2005 to harmonize regulations in the NAFTA countries.

U.S. government officials have dismissed the superhighway as an urban legend and the Security and Prosperity Partnership website in the U.S. calls it a myth. But Paul is convinced that it is part of a secret plan to create a North American Union. The issue has started to crop up at town hall meetings with other Republican candidates.

Should Canadians be concerned at this questioning of NAFTA and the broader protectionist sentiment in the U.S.?

You could argue that NAFTA would be improved by the addition of labour and environmental rights. But that is supposing the Democratic candidates really believe in this goal and are not just using it as an acceptable way of limiting access to the U.S. market. You would also have to assume that NAFTA could be reopened and renegotiated without falling apart completely.

Trade figures indicate that we are not in a position to ignore any threat to our U.S. access. Although the U.S. share of Canadian exports and imports fell last year, the U.S. is still by far the most important trading partner for Canada, buying 78.9 per cent of our exports and supplying 65.5 per cent of imports. On the export side, Britain was a distant second, purchasing 10.1 per cent of our goods, followed by Japan, China and Mexico. Imports showed only a slightly closer race, with China in second place, followed by Mexico, Japan and Germany.

How real is the threat?

A politician on the campaign trail will say a lot of things that are not necessarily translated into policy once victory is assured. Canadians have enough experience with our own politicians to understand this point.

And the U.S. is one big campaign trail at the moment. Democrats and Republicans are vying for their party's presidential nomination. Those nomination races will be followed by elections next year for a new president, vice-president, all 435 members of the House of Representatives and 33 of 100 senators.

The election is still far enough away that some other issue could emerge to displace free trade as a major concern for candidates. It's not time to ring the alarm bells quite yet about what impact rising U.S. protectionism will have on Canada. Which is not to say we should ignore the rhetoric. The situation bears watching.