Will the Trump presidency see the erosion of prosperity or a rise in affluence in North America?
The first six months of the Donald Trump administration will be a time of disruption and rapid change. As a democratically elected world leader, he will act in ways that will defy the expectations of pundits and political watchers accustomed to a certain level of decorum and politesse. As President Trump works to be the agent of change, he will focus on headline-making short-term gains. It will be critical throughout this period for Canada to stay its course, to be prepared for the disruption but focused on the long-term stability and prosperity of North America.
While Trump’s campaign was focused on job creation, the actions of others may eclipse his agenda and dictate the work that gets done in the first 100 days he is in office. Foreign policy takes precedence when national interests are in jeopardy. As John F. Kennedy noted frequently, “domestic policy can only defeat us, foreign policy can kill us.” In the days immediately before and after the inauguration China and Russia’s actions, and those of non-state actors such as Daesh (commonly known as ISIS), may limit his ability to pursue his preferred agenda. For example, in order to preserve global trade routes, the US may be compelled to take an aggressive stance on Chinese warships in the South China Sea.
The goals and ambitions of the Republican Party will also serve as a limiting factor on implementing the campaign priorities of candidate Trump.
The goals and ambitions of the Republican Party will also serve as a limiting factor on implementing candidate Trump’s campaign priorities. Mitch McConnell and Paul Ryan have promised the Republican caucus and the American people a renaissance of sorts. The Republican hold on both houses of Congress and the White House provides opportunities that will be taken advantage of swiftly, before the midterm elections risk the return to a majority for the Democrats in one or both houses of Congress in 2018. The key domestic goals for the caucus include the repeal of the Affordable Care Act, the confirmation of a Supreme Court justice, and reform of the tax, regulatory, judicial, and immigration systems. These are all goals that are shared with Donald Trump, but not necessarily in the order or manner that he would prefer.
Among the unknowns, there are two key unanswered questions that will influence how everything happens within a Trump administration and how Donald Trump will operate as President. First, there is his management of the Republican caucus as it works to achieve legislative goals. All signs are, and tradition dictates, that much of that water will be carried by his vice-president, Mike Pence. Pence served six terms in Congress and left in 2013 to become governor of Indiana. He is generally liked and respected by his colleagues on both sides of the aisle. He has experience in legislative processes and executive authority, and he understands the difference between pursuing objectives as a legislator and pursuing them from the White House.
Second, there is the President’s management of the cabinet. The Senate confirmation hearings for the administration’s nominees appeared to demonstrate an open, “team-of-rivals-style” approach to his executive branch strategy. It appears that he intends to provide the members of his cabinet significant latitude and autonomy to manage their agenda and pursue the mandates of their respective departments and agencies. While Trump will likely employ this board-room approach to cabinet management, issues that make headlines in the US will likely receive his direct attention via his Twitter feed, which in turn will influence financial markets. Trade policy to drive investment and thus create jobs in the US will be an executive- branch priority, managed by a combination of the United States Trade Representative (USTR); the secretaries of state, commerce, treasury, and agriculture; and the National Trade Council — an advisory board that Trump created as president-elect and housed inside the White House. While in the past the trade team has been led by the USTR, it has been widely reported that in this case Wilbur Ross, the Secretary of Commerce, will serve as the principal articulator of the vision.
The combination of Wilbur Ross at commerce, Robert Lighthizer as USTR, and Peter Navarro inside the White House, indicate that the enforcement of trade rules and fair practices, along with unabashed protectionism, will be twin pillars of Trump’s trade policy. This will be an administration that sees global affairs, including trade, as a zero-sum game. Unlike President Obama, whose vision of a better America was directly tied into the fate of the people of the world, with Trump there will be little regard for a shared destiny, only US interests will count. In fact, of the two announced director-level appointments to the National Trade Council, one is specifically tasked with the proliferation of “buy America” provisions.
Considering the new administration’s focus on protectionist measures and bilateral trade agreements, the future of the North American Free Trade Agreement is far from clear, although we can be reasonably sure it will continue to exist in some form. It is separate though, from the House Republicans’ proposal for a border tax as part of the tax reform package. This combination of economic levers is designed both to discourage tax inversions, where US companies purchase foreign companies to move their headquarters offshore, and to bring manufacturing back to the US by taxing imports but not the production costs of exports. How this would affect the bottom line of large manufacturing companies is an open question, but the impact on small and medium-sized enterprises operating in the US and Canadian markets is clear: tight profit margins will likely require manufacturers to remain in or relocate to the US, if that is where the end consumers of their products reside.
The executive branch trade team could renegotiate NAFTA as they see fit, with no input from Congress.
It’s important to remember that trade policy, international agreements and trade enforcement are the domain of the executive branch. Congressional provision of fast-track authority, a hold-over from the last administration, provides significant power to the executive. In practice, this means that the executive branch trade team could renegotiate NAFTA as they see fit, with no input from Congress, and then deliver the finished package to that body for a simple up or down vote.
In the global trade arena, the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership were part of an exercise to isolate China from beneficial trade agreements until it agreed to play by the globally accepted rules. Those rules, and regional trade agreements in general, are long-game plays. Short-term gains in GDP are sometimes sacrificed in the name of ensuring long-term markets. Trump’s targeting of bilateral trade agreements is another indicator of his apparent disregard for issues of longer-term global consequence.
Canada should not sit back and feel that there are no sights set on their trade and economic practices. As Canada’s ambassador to the US, David MacNaughton has already telegraphed in his remarks and interviews, Canada’s best defence is a good offense. In any NAFTA renegotiation, Canada should be preparing to discuss a number of contentious issues, including dairy, poultry, wine and grain, not to mention softwood lumber. The USTR estimates that 1.7 million jobs in the US are supported by the free trade agreements with Canada, but if even a couple of hundred jobs appear to be leaving the US to go to Canada, this administration will likely put in place punitive measures.
The other priority with significant implications for the relationship with Canada is border security. Donald Trump has so far focused on the southern border, but the pressure on cooperative policies at the shared Canada-US border, including many parts of the Beyond the Border initiative, will grow. The degree to which the US’s and Canada’s frames of reference on the border differ should not be underestimated. How Canada navigates this new terrain will define the success of the Canada-US trade and security relationships for the remainder of the Trudeau government’s four-year mandate.
The news of former General Andrew Leslie’s appointment to the cabinet committee on Canada-US relations demonstrates that the Canadian government understands it will need to up its game in this regard. Balancing the interests of bilateral trade with those of North American perimeter security will likely lead to some policy casualties. The Obama administration’s goal of border policy as the facilitation of secure and efficient cross-border travel will be replaced with a border policy focused on security.
John Kelly, President Trump’s pick for Secretary of Homeland Security, is a security hawk and reportedly has the unqualified support of officials in the department. His security-first positioning will likely be at odds with elements of the Beyond the Border initiative with Canada. The continued irritants on the transit of counterfeit goods, privacy concerns on information sharing, and cargo pre-clearance may keep many of the ongoing border-efficiency discussions from continuing apace.
While perimeter security has been identified by the US as a goal, the skeptics there have never quite been convinced of Canada’s ability to deliver the processes required to meet the security standard necessary to substantially thin the border. American has concerns about several aspects of Canadian policy such as sharing information to securing the land borders, ensuring the integrity of the operations within major airports, and properly vetting the immigrants and refugees applying to enter Canada. In addition, the pre-clearance operations in Canada will need to demonstrate their ability to maintain the highest levels of confidence on the security of the officers assigned to those points of entry, as well as the integrity of the process for individuals who are denied entrance to the United States for security reasons.
The potential dangers in a Trump administration will not necessarily be evident in the days after inauguration or even in the first six months. For Canada, as for the United States, the danger is the erosion of the prosperity and stability of North America. Like any great partnership, we have proven ourselves to have a value much greater than the sum of our parts. Tax policies, regulatory reform, trade policies, and security posture that further divide and separate us will drive down our combined potential. Canada will need to find like-minded travellers within the US to ensure that North America continues to thrive.
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