President Joe Biden’s decision to step aside rather than again seek the Democratic nomination in the United States election has come as a relief to many U.S. allies, including Canada. Kamala Harris seems to be a contender who can take on the Republicans and former president Donald Trump.

This should be good for Canada, right? Maybe, but history advises that we temper our expectations.

For one thing, Trump may not be all that terrible for Canadian trade. True, he threatened to tear up the North American Free Trade Agreement (NAFTA) on his first day in office, but the revised United States-Canada-Mexico Agreement (CUSMA) negotiated under his watch was a pretty mild document that even included a few improvements to the original deal.

Former U.S. trade representative Bob Lighthizer would likely be tapped for a senior cabinet position – perhaps treasury secretary – if Trump were to win this fall.  Lighthizer’s presence  would almost certainly result in a trade policy of aggressive moves against China and a certain degree of collateral damage for Canada.

Canadians would have to lobby for exceptions and modifications, just as we did against steel and aluminum tariffs during Trump 1.0. That said, North American trade under Trump would be a relatively predictable bubble within a larger framework of potential chaos, including mass deportations and a dissolution of military alliances.

A president Harris would certainly provide greater overall stability, but on economic files a new Democratic administration would not be easy for any U.S. trading partner. Free trade has historically been Republican terrain.

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Since the early 1990s, when Bill Clinton supported the NAFTA in exchange for labour and environmental side agreements, Democrats have accepted trade deals reluctantly. They have always prioritized their obligations to unions and environmental organizations over business deals with foreigners.

Even former president Barack Obama’s Trans Pacific Partnership – touted as a way to build U.S. allies in the Pacific – was opposed by then-senator Harris. Citing insufficient environmental and labour protections, she also voted against CUSMA.

The new mercantilism

Trade negotiators in the postwar era believed that market efficiency and letting business do business was the best way to promote national economic growth and international political stability.

Cross-border trade deals minimized opportunities for politicians to disrupt long-term stability for short-term political gains. This worked well as long as the majority of benefits flowed toward the United States and other G7 nations that were the major drivers for such deals.

With the rise of China’s economic power, apolitical trade policy did not seem so attractive. The Trump White House, aided by Lighthizer and trade adviser Peter Navarro, normalized political intervention in trade policy. Their America-first approach was the sort of protectionism that provokes global depression and interstate warfare.

Trump’s attacks on global trade regulation allowed the Biden administration to use many of the same tactics to advance new protectionist goals. What’s different now is the narrative. Trump was repelling attacks on the U.S. by what he saw as a world of unfair traders, while Biden has been rebuilding domestic manufacturing capacity with a little help from the country’s friends.

The pendulum swings to economic security

Politicians having soured on the idea of open markets to build competitiveness are preferring protectionist policies to achieve economic security. This is one area where the far right and the far left in the U.S. agree.

Jake Sullivan, Biden’s national security adviser, summarized the main points of U.S. economic security doctrine in an April 2023 speech. He noted that the prevailing approach to trade negotiations contained assumptions about market efficiencies and growth, but traded security of supply for lower prices. Over time, that reduced U.S. capacity to innovate and remain resilient in the face of supply-chain shocks.

What’s more, he argued, liberal democracies were mistaken in their belief that reducing trade barriers would lead to a more peaceful and co-operative global order. For the U.S, this miscalculation has been especially stark in the case of China and Russia.

Sullivan concluded: “For the problems we are trying to solve today, the traditional model doesn’t cut it.” In response, the Biden administration advocated an economic policy focused on reshoring productive capacity, along with investment in domestic innovation, infrastructure and clean energy.

This new approach lacks a way to deal fairly with neighbours who have helped create an integrated and open economy for a generation. Economic security for the United States means less for Canada and Mexico. With almost 80 per cent of Canadian exports destined for south of the border, additional layers of U.S. protectionism have an immediate and negative effect on Canada.

Is friendshoring the solution?

To mollify trading partners facing losses as a result of U.S. economic nationalism and the exclusion of China, the Biden administration embraced a policy of friendshoring.

Friendshoring involves reconfiguring supply chains through countries perceived to be politically and economically low risk and away from political and economic adversaries. The difference between friendshoring and regional trade agreements such as CUSMA is that the latter are based on long-term, consensus-based rules, while the former are built on short-term political decisions that may not align with business realities.

The World Economic Forum warns that friendshoring leads to a decline of interdependence among nations, global institutions and enterprises. Economic analyst Moody’s has suggested that friendshoring can increase costs for businesses to find new suppliers and result in fraudulent shipments from higher-risk countries through intermediaries. This is particularly true in the case of Chinese goods entering the CUSMA zone through Mexico.

Does Canada have a “Sullivan doctrine?”

Canada’s limited economic clout makes it difficult for the government to offer economic incentives or penalties (subsidies, tax breaks or tariffs) to encourage businesses to nationalize production and investment decisions. What remains is the less effective tool of moral suasion.

Canada has been closely aligned with the Biden administration and has put sustainability and inclusion at the core of its trade priorities. But when American subsidies and tax breaks divert production and investment away from Canada, there is little for us to do except appeal to the U.S. In some cases this works. Consider Canada’s successful lobbying to minimize the effect of U.S. incentives for electric vehicle battery production and for inclusion in a defense production sharing agreement. In other cases, such as Buy American provisions, the results are less satisfactory for Canada and require continuous appeals for exemptions.

On the positive side, the governments of Biden and Prime Minister Justin Trudeau made real gains in bilateral co-operation on critical minerals, semiconductors and clean energy. And CUSMA continues to provide secure market access for the majority of trade sectors. But this  could be threatened if the 2026 CUSMA review does not result in all three signatories recommitting to the deal.

What’s next?

Election prognosticators in the U.S. are trying to work out the odds of a Trump or Harris presidency. In Canada, speculation includes how well different leaders would work together: Trump and Trudeau? Harris and Poilievre? And how much do leader relationships really matter to getting things done?

What we know for sure is that economic nationalism is on the rise globally. In the late 1990s, Canada bet on rules-based, free-trade agreements and, so far, that has paid off. But Canada’s external trade dependence makes it vulnerable to rising U.S. protectionism. Canadian businesses and officials have been forced to engage in sector-by-sector and city-by-city lobbying in the U.S. to keep preferential status. Take for example Trudeau’s Team Canada initiative.

Whether it is a Harris or Trump victory in November, there will be no easy rides for Canada in the coming decades. Canadian officials and business leaders will need to apply hands-on attention to brokering and maintaining key economic relationships in a way quite different from Canada’s set-it-and-forget-it approach to trade advocacy during the years when the U.S. was the world’s free-trade champion.

This article is part of the Trade in an Era of Global Insecurity special feature series.

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