It went down to the wire, but it appears that Canada will be signing on to the trade deal previously agreed by the United States and Mexico. Part of the deal, very important to Trump, is that the new arrangement will not bear the name NAFTA. Instead it will be known by the unpronounceable acronym USMCA, standing for United States Mexico Canada Agreement. In one important sense that's not a bad change, because if there's one thing that the new deal doesn't achieve, it's free trade.
A cursory glance at Canada's "red lines" in the negotiations shows that many of the arguments were about how many of the anti-free trade provisions of NAFTA the country would be able to carry over into the new deal. Prominent among these, and a cause celebre for Trump after he received an earful from Wisconsin farmers during the election campaign, was Canada's system of "supply management" for dairy and other agricultural products. This was resolved in part by opening up 3.6 percent of the Canadian dairy market to US competition, a miserly concession that nevertheless has the dairy lobby crying doom.
The solutions found for many of the other contentious issues tend to show just how far the US moved off its initial bargaining positions in order to make the deal. For example, the initial US stance was that the new deal should expire after just five years, something that both Canada and Mexico found unacceptable. USMCA provides for an initial term of sixteen years, with the opportunity to extend it further after six years. Canada also seems to have won a victory over the so-called Section 19 dispute resolution mechanism, which the US wanted to abolish but which has been carried over essentially unchanged into the USMCA.
Other terms of the deal, including changes in auto rules of origin, patent protection, duty free shopping allowances and such, can be found here. Considering how minor, indeed almost cosmetic, as lot of the changes are, it's legitimate to wonder (a) why Trump was so anxious to blow up NAFTA and (b) why it was so hard for Canada to belly up to the bar until the last moment.
As far as Trump's motivation is concerned, the simplest explanation is is just likes taking credit for stuff. Making minor changes to an existing deal doesn't give him much to brag about at the mid-term elections, but a newly-named deal reached at the eleventh hour will look much more impressive to what remains of his base.
As for Canada, it's a little harder to be sure of what happened. As I have repeatedly suggested in previous postings, the Trudeau government has mismanaged this from the outset, dragging in all kinds of extraneous topics and generally not seeming to take the various deadlines set by the US (and by the political cycle in Mexico) at all seriously. The sudden rush to conclude a deal over the past week may have reflected a belated realization that Trump really might follow through on his threat to impose tariffs on Canadian autos. A cynic might also wonder if going down to the wire suited Trudeau well enough, with a Provincial election taking place today in Quebec, the Province likely to be hit hardest by the dairy concessions.
Removing the uncertainty over NAFTA should be good for both consumer sentiment and business investment in Canada. And it surely leaves the way clear for the Bank of Canada to raise interest rates again later this month.
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