The United States and Mexico have reached a new trade agreement without Canada, sending politicians and diplomats in Ottawa into damage control mode.
U.S. President Donald Trump announced late Monday that his country had struck a new trade deal with Mexico and signaled that his administration would now give Canada a chance to join the new deal or risk seeing the current North American Free Trade Agreement (NAFTA) scuttled.
“Take it or leave it,” President Trump told reporters from the Oval Office on Monday, referring to Canada’s position vis-à-vis the new trade arrangement.
Yet while Canada’s Foreign Affairs Minister Chrystia Freeland flies to Washington, D.C. Tuesday to try and salvage the fractious trade negotiations with the U.S., financial markets appear to be shrugging off President Trump’s trade threats against Canada.
Canadian stocks and the Canadian dollar extended their gains Monday after news of the U.S.-Mexican agreement, discounting President Trump’s threats that Canada might be frozen out and instead face auto tariffs. Shares of Canadian auto parts makers such as Magna International Inc. and Linamar Corp. were among the stocks that rose on Monday in late trading.
The U.S.-Mexico partial deal does put pressure on Canada, but the country is not without leverage in the trade talks. One reason is that U.S. trade law lays out an easier path for approving a three-nation trade deal than bilateral deals. Another is that most elected officials in the U.S. Congress say that Canada -- the top buyer of U.S. exports -- should be included in the new trade deal. Lastly, there is more urgency to conclude trade negotiations in the U.S., where midterm congressional elections are being held this November than in Canada, which is seemingly on no hard and fast timeline.
Analysts said Tuesday that President Trump’s impulse to barge ahead with just Mexico is not smart and unlikely to succeed. As for the trade talks, the outstanding issues between Canada and the U.S. remain anti-dumping panels allowed under the current NAFTA, the dairy industry that is currently not part of NAFTA, and potential tariffs imposed on automotive parts shipped between the two countries.
