U.S., Canada: Trade Disputes Between Ottawa and Washington Aren't Just National

3 MINS READFeb 21, 2018 | 23:05 GMT
Forecast Update

In Stratfor's 2018 Annual Forecast, we wrote that Canada would adjust course as U.S. President Donald Trump's administration continued its push toward protectionism and as negotiators struggled to reach a NAFTA deal. We also wrote that regardless of what happens with NAFTA, the United States will remain Canada's main trade partner.

The complexity that characterizes most trade disputes between Canada and the United States is now being seen at the provincial and state level. On Feb. 20, Ontario's government tabled the Fairness in Procurement Act, which would empower the province to "take responsive and proportional action to discriminatory" measures enacted by American states. Ontario's proposed law arrives ahead of New York's Buy American Act taking effect on April 1. The New York law will require state entities to use U.S. iron and steel in highway and other infrastructure projects.

It's no surprise that Ontario is taking trade threats personally. Ontario's steel industry — the heart of Canada's steel industry — is under pressure from U.S. demands to change the automotive content rules of the North American Free Trade Agreement (NAFTA) and from tariffs that might arise out the U.S. Section 232 investigation on steel imports. Canada's federal structure gives significant political power to the country's provinces, and as global trade and non-tariff barriers become more hotly debated, Canada's provinces are being forced to step into the international spotlight. The provinces sent their own negotiators to talks with the European Union over the Canada-EU free trade agreement, for example. British Columbia and Alberta are even mired in their own low-level trade war.

Canada, motivated by its significant integration with the United States and its dependence on U.S. trade, has taken the lead against the protectionist stance of U.S. President Donald Trump's administration. While the United States had an overall $24.7 billion trade deficit with Canada in 2017, according to U.S. trade data, it had a $34.2 billion non-energy trade surplus, a figure that gives Canada leverage in its disputes with the United States. Buy American legislation in the state capitals and in Washington has always been a sticking point in U.S.-Canada trade relations. In December, Canada filed a sweeping complaint against the United States at the World Trade Organization, accusing the United States of anti-dumping and countervailing duty practices and other violations of WTO rules.

Canada's leading role against U.S. trade practices is evident in the NAFTA talks, the seventh round of which starts Feb. 25 in Mexico City. Mexico has taken a back seat on many NAFTA issues, particularly on the contentious rules-of-origin requirements for the automobile sector. The Trump administration is demanding that at least 50 percent of a vehicle's content must come from the United States to qualify for tariff-free treatment. It's one of the main sticking points standing in front of a final deal, and Canada holds the key to its resolution.

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