What’s the point of NAFTA or any of the other ‘free’ trade deals if craziness can simply overwhelm them?
American authorities have sideswiped Canadian aerospace manufacturer Bombardier with punitive duties. No unbiased observer can explain the outrageous 220 per cent duty imposed on the importation of Bombardier’s C Series jets.
There are two disturbing reactions to this. One, the North American Free Trade Agreement (NAFTA) is so one-sided that American authorities can manipulate it at will. Or, more likely, U.S. President Donald Trump is up to his old tricks, intimidating, bullying and stiffing his business partners.
The central question is: does Bombardier receive subsidies?
Yes, the company has received $1.7 billion in direct government (provincial and federal) subsidies since the federal Liberals came to power in 2015. It’s widely known (and deeply resented in the rest of Canada) that Quebec-based Bombardier has received a variety of direct and indirect subsidies from the federal and Quebec governments since 1966.
U.S. aerospace giant Boeing (which made the original complaint about Bombardier) is, however, no stranger to government support. Mind you, Boeing is a little smarter than Bombardier – their support is indirect, coming from agencies the U.S. government influences but does not directly control, like the Export-Import Bank of the United States and the U.S. military.
In truth, the complex and highly valuable global aerospace industry would not exist without generous subsidies.
And yet, the American authorities imposed punitive duties (three times those requested by Boeing) on the Canadian manufacturer. This extraordinary action violates both the spirit and the letter of NAFTA.
It’s true that the U.S. uses NAFTA when it’s convenient and overrides it whenever it chooses. However, the irrationality and outrageous nature of this most recent action has Trump’s nasty fingerprints all over it.
It’s no coincidence that when this decision was made, the U.S., Canada and Mexico were involved in complex trade negotiations. These negotiations are highly technical and finding win-win solutions requires a lot of trust and goodwill.
Nevertheless, it seems that Trump is attempting to mistreat his Canadian and Mexican trading partners, just as he did his business partners and suppliers in the past.
Trump the businessman was notoriously difficult to deal with. Those who did business with Trump describe him as loud, pretentious and disagreeable. Almost without fail, after agreeing a deal he’d begin attacking it, raging about trivial issues or simply inventing problems in order to create conflict. Most of his suppliers would simply roll over, accepting the inevitable.
One of Trump’s favourite tricks was to engage highly reputable suppliers and then turn the tables on them. These companies would sign legally-binding agreements, do the work on trust and then invoice one of Trump’s many companies after the work was complete.
At this point, Trump would often invent some problem or failing on the part of the supplier. Then he’d offer to pay only half the agreed price. If the supplier threatened to sue, Trump counter-sued and threatened to drag out the legal fight for years (or even decades). Most small businesses he dealt with fell over easily and so Trump’s unethical businesses practices paid off handsomely.
So is Trump trying to deliberately sabotage NAFTA, undermining one of the earliest and most effective trade deals for the United States?
Probably not. But he behaves as if normal rules and laws of society don’t apply to him. His natural instincts are to use whatever means he can to intimidate and dictate the terms of the agreement.
Canada should not fall into the trap of believing that traditional Canadian-U.S. goodwill will prevail with Trump.
Trump is not a win-win negotiator; it’s ‘I win, you lose’ for the president. Canada must be prepared to stand up to him in the short term. And it must begin the laborious process of working around the president.
Canadian trade negotiator and Foreign Affairs Minister Chrystia Freeland faces a severe challenge. But there’s plenty of ammunition in her arsenal. For instance, tens of thousands of American jobs will be lost as a result of this action. In addition Canada has a growing network of state and federal free-trade supporters in the U.S.
Trump has lit a dangerous fuse. Expect Canadian negotiators to bend but not break in this bizarre assault on the common sense and decency that has characterized Canada-U.S. relations for centuries.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.
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