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Supply management showdown: Canadian politics complicates 2026 trade talks
The precarious nature of domestic politics in the Canadian House of Commons looks set to have implications for the mandated renegotiation of the Canada-US-Mexico trade agreement in 2026.
The governing Liberals need the support of the left-wing NDP or separatist Bloc Québecois to survive the barrage of no-confidence votes being brought forward by members of the opposition Conservative Party, who are ahead in the polls and want to send the country to an election.
The price the Bloc has put on its support are two pieces of legislation sponsored by its members – one, to increase old-age security payments for seniors aged 64-75, and two, a bill that would forbid Canada’s trade negotiators from making concessions on the country’s protected dairy, chicken, and egg sectors, known as supply management.
The latter was passed recently by all parties in the House of Commons, despite concerns about grocery prices. But it is currently being held up in the Senate, the unelected upper chamber. There are a number of senators who used to be senior diplomats and who point out that ring-fencing supply management, predominantly based in the eastern provinces of Ontario and Quebec, will inflame trading partners and tie the hands of trade negotiators, who will be forced to give ground in other agricultural sectors like beef, pork, and canola, which are all based in the West of Canada.
Veteran trade negotiators say making supply management untouchable would be a big mistake as we approach the renegotiation in two years, particularly if Donald Trump becomes president.
Supply management was a major irritant to the Americans in the 2017/18 negotiations, and Canada was forced to grant the US more access to its dairy market, in return for keeping the production and pricing control system in place. There are legitimate fears that this time the US will seek to kill supply management.
The unelected Canadian Senate can only obstruct the democratic will of the House of Commons for so long, and it seems inevitable the Bloc bill will pass into law.
Canada had expected the 2026 renegotiation to be a formality. But it had best not count its chickens.
Should Canada give three F’s?
You’re leaving your role as president of the Canadian Chamber of Commerce after 17 years, which has been a transformative time. What is the biggest economic challenge facing Canada's trade with the US?
Perrin: The politics of trade has undergone a sea change in the US under the last two presidents. Previous presidents, from Ronald Reagan on, viewed America's interactions in the global economy as an opportunity to foster American prosperity, and they saw an integrated North American economy as a source of strength. More recently, however, US politicians have started to turn inward, increasingly viewing their country as a victim, and not as the primary beneficiary of international engagement. This change has led them to increasingly align themselves with domestic protectionists who want to build economic walls along the US border.
Unfortunately, this turn inward has coincided with a complacency here in Canada about our most important bilateral relationship. Even the best of friends can't afford to take each other for granted, or they will soon drift apart.
As Canada's relationship with the US has moved from being strategic to being transactional, American leaders are increasingly looking at each issue as a standalone, and they are making their decisions, not on what is in America's long-term best interest, but on where they can find immediate political advantage at home.
We need to rebuild that strategic relationship. It's vital for Canada to be seen as bringing solutions to the major problems confronting the United States, as opposed to simply pleading to be exempted from the latest punitive measure. We need to demonstrate, both in Washington and far away from it that Canada should be treated not as a problem, but as a partner.
Perrin Beatty, outgoing president and CEO of Canadian Chamber of Commerce. REUTERS/Rebecca Cook
You recently said: “Canada is increasingly being viewed by our partners in the region as a well-meaning but unserious player on the international stage." In what ways has Canada become an "unserious player," and what needs to happen to change that reputation?
Perrin: Unfortunately, we have come to see ourselves as a moral superpower whose job is to tell everyone else what they are doing wrong. And we expect them to be grateful to us for it. Too often, we are driven more by a desire for good feelings than for good results. In contrast, other countries are both faster-moving and more engaged in the issues their interlocutors consider most important. The consequence is that, where the US and other countries used to ask, “How do we get the Canadians involved?” their question is now, “Should we inform the Canadians?” The fact that we learned about the AUKUS agreement at the same time as everyone else is just one example.
The Russian invasion of Ukraine two years ago should have been seen by Canada as world-changing, and our response should have been both meaningful and swift, with us marshaling what we have to offer in defense of the democracies. For example, Canada has an abundance of the “three F’s” – food, fuel, and fertilizer – and critical minerals that are essential to global stability. What we lack is the infrastructure, the vision, and the will to bring them to global markets to give countries an alternative to sending dollars to despots. This could be Canada's moment, but only if we are prepared to seize it.
You were a former defense minister under Mr. Mulroney, so you know about dealing with a dangerous world. But now, everyone is looking at the impact of the US election. Are we headed into a period of instability, conflict, and the dismantling of both trade and defense alliances that have been built since World War II?
Perrin: The problems we face, from global poverty to pandemics to wars to global climate change, all require an effective, coordinated international response. Instead of that, we are witnessing countries turning inward on themselves, as well as the increasing ineffectiveness of global institutions like the UN, the World Trade Organization, and the WHO in actually resolving issues that go to our very survival.
When I was privileged to be in government, there was a sense that, when the leaders of the G7 – leaders who included Reagan, Thatcher, Mitterrand, Kohl, and Mulroney – came together, problems would be resolved. Today, when international meetings take place, you get the feeling that our problems are bigger than our leaders. In fairness, the world is a much more complex and dangerous place today, but that's precisely why we need leaders whose vision, determination, and morality are up to the challenge. As your question suggests, we're at a crossroads that will determine whether we will be able to maintain the institutions and strategies that have guaranteed democracy, peace, and prosperity since the Second World War. The stakes have never been higher.
AI is both a transformative opportunity and a destabilizing threat. What is your view of how will impact business?
Perrin: Like businesses the world over, Canadian businesses will be transformed either for the better or for the worse by AI. AI, like the nuclear genie, can't be put back into the bottle. Our challenge is first to understand it, then to decide how to mitigate its potential bad effects, and then to determine how to unleash its positive aspects. In this instance, the technology is developing at a pace that far outstrips our capacity to understand it and manage it well. However, calls to initiate some sort of a standstill until we have thought these things through are naïve and unworkable; all that would happen is that the unscrupulous players would widen their lead.
The challenge for Canadian policymakers is how to successfully work with others on coordinated policies that limit the dangerous aspects of AI without denying its benefits to our industry and our society.
If there is a second Trump Presidency, what should Canada expect from the 2026 review/renegotiation of USMCA trade deal?
Perrin: Many Canadians expected that when Joe Biden became president, he would reverse the Trump protectionist measures. However, that assumption overlooked the fact that, in the past, Republicans were more in favor of free trade, while Democrats were more protectionist. In fact, the Biden administration has actually deepened some of the protectionist policies initiated by Donald Trump.
The danger is that the election will be a contest between two candidates trying to demonstrate who is more protectionist. Canadians must respect the right of US voters to determine their own government, just as we would insist on the Americans respecting our rights, but we need to demonstrate that it is in Americans' self-interest to foster a stronger relationship with their closest neighbor and best friend. And we must do that, not by special pleading, but by coming up with solutions to problems.
Finally, what is the best-case scenario for the US-Canada relationship in terms of economic prosperity and security? Is there a way to slalom through the protectionism, AI disruptions, political polarization, climate challenges, and conflicts and see a time of increased joint prosperity?
Perrin: The best-case scenario is that we restore a strategic partnership with the world's greatest superpower. We've let the relationship slide for too long, and it won't be easy to regain that position. But I believe it can be done if we muster the vision and the will to make it happen.
Last thing: You worked for Brian Mulroney, who recently passed away. He was the architect of the North American Free Trade Agreement and worked closely with Ronald Reagan. What lesson can today’s leaders learn from that time?
Perrin: As Canadians commemorate Brian Mulroney, our leaders should ask what they can learn from Canada's last great transformative prime minister. Brian Mulroney understood that governments don't create jobs and prosperity, businesses do. He also knew that the best way to solve problems was not to shut people out but to bring them in.
It's impossible to say exactly what policies a different government would follow, but what we do know is that our economy and our country are under severe strain today. The leader history will remember best will be the one who brings people together again in what remains the most fortunate country on the face of the globe.
Graphic Truth: US trade deficit with Canada & Mexico
The US trade deficit in goods with Canada and Mexico reached an all-time high in 2023 of over $220 billion — and despite what you may hear from certain former US presidents, that’s a good thing. Yes, more money than ever is leaving the US and going to the neighbors. And in exchange, American consumers get more stuff from their neighbors than ever before and for better prices than they can find at home.
Canada braces for a Trump presidency
Canada’s Foreign Minister Mélanie Joly says Justin Trudeau’s government is working on a “game plan” for how it would respond to a right-wing, protectionist government in the United States after the 2024 election – just in case. She said she would work with local and provincial leaders as well as the business community and unions to do so.
Joly also referenced the efforts Canada made the last time, when Trudeau launched a charm offensive in 2016 in a bid to keep Trump sweet. Canadian political and business leaders made an unprecedented push to communicate with different levels of the US government and the business community about the value of the trade relationship. They eventually negotiated a new deal similar to NAFTA, the United States-Mexico-Canada Agreement.
The possibility of a second round with Trump, who forced Canada to renegotiate its crucial trade relationship with the US, is widely seen as a threat to the countries’ trading partnership.
And Trump is not doing anything to calm the waters. The former president met recently with advisers at his Mar-A-Lago compound in Florida to discuss his plans for the 2024 election, according to the Washington Post. They discussed the idea of a “universal baseline tariff” on imports to the US, with Trump interested in putting a “ring around the U.S. economy.” This, Trump told Fox News, could entail a 10% tariff on all imports.
Under the terms of USMCA, most trade between Canada, the US, and Mexico is currently conducted without tariffs. But that deal is due to be reviewed and renewed in 2025-2026.
More than $3 billion in goods and services cross the border each day, everything from auto parts to building supplies to Amazon packages. In 2016, the two countries did $627.8 billion worth of trade. By 2022, it had increased to $1.2 trillion – so any disruption could have cataclysmic effects on the trade-dependent Canadian economy, as well as serious effects on the US economy, particularly in border states.
Why Mexico is a key issue in the 2024 US election
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics.
I'm here in Mexico City, the capital of Mexico, which is a country that is turning out to be a major potential campaign issue in the US 2024 elections. We've already seen several Republican candidates try to distinguish themselves by painting Mexico as a bad guy. Florida governor Ron DeSantis has said that he wants to militarize the border in order to stop the flow of drugs, guns and crime and illegal immigrants coming over the border. Former President Donald Trump famously renegotiated NAFTA with Mexico and used the threat of additional tariffs to force Mexico to secure its southern border to prevent Central American migrants moving up into the United States. So this is going to be a big issue over the next 12 months in the US.
Both Democrats and Republicans, likely Democrat nominee Joe Biden and potential nominee Donald Trump are vying for the votes of autoworkers inside the US, which means promising to bring more domestic production back home to the US, which could potentially hurt Mexico, which has, of course, a free trade agreement with the United States. There's also a presidential election here in Mexico. So depending on the outcome of that, that could be the opportunity to fundamentally reset relations. One likely candidate has virtually no foreign policy experience, and one likely candidate has a lot of foreign policy experience, having dealt extensively with the United States. And the outcome here is going to be important when the US and Mexico start to renegotiate the USMCA, the trade agreement that binds the three North American countries together in 2026. There is a periodic six-year agreement to revisit details of that. And as the US starts to focus more on industrial policy and production directly in the United States, this could be an issue for Mexico, who counts on the American market for a large segment of its exports, particularly in the automotive industry. The Mexican government has lagged behind a little bit other governments in taking advantage of the opportunity of the trade war between the US and China to create more sourcing opportunities out of Mexico. And that's going to be a major issue to watch over the next several years. So lots of interesting issues here in Mexico that will affect US politics.
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The Graphic Truth: US-Canada agriculture trade boom
The US and Canada, whose trade relationship topped $1.2 trillion in 2022, have long been at loggerheads over one key sector: agriculture. Indeed, both countries have accused the other of putting in place protectionist policies that undermine the spirit of free trade.
This all came to a head in 2018, when then-President Donald Trump played hardball over the renegotiation of a US-Canada-Mexico trade agreement, citing Ottawa’s role – dating back to the 1960s – in stabilizing agricultural prices at home. And Trump isn’t the only one with protectionist proclivities: President Joe Biden has kept many of his predecessor’s trade policies intact.
Despite claims that broad free trade agreements have hurt their respective farming sectors, bilateral agri-trade has in fact boomed over the past few decades due to the eradication of trade barriers. We take a look at US-Canada agriculture trade since 1990.
The Graphic Truth: US trade deficit with Canada & Mexico
In 2016, Donald Trump successfully mobilized his base around NAFTA being “the worst trade deal ever signed.” He argued that US industries were being suppressed by trade deficits with Canada and Mexico, and he promised to disband the agreement if elected.
Mexico was also under pressure for renegotiation. While NAFTA turbocharged Mexican agricultural and manufacturing sectors, many thought Mexico was too reliant on the US importing its products, putting its economy at the mercy of international food prices and exchange rates.
When Trump won the presidency, he kept his promise and called for the trade deal to be renegotiated. The promise he didn’t keep: lowering the trade deficit.
The law of the land now is the United States-Mexico-Canada Agreement, or USMCA, which still gives Canada and Mexico sweeping access to export products to the US. Trade deficits aren’t inherently negative as they help consumers benefit from cheaper goods, but domestic industries do struggle in the face of increased competition.
We look at how the US trade deficit with Mexico and Canada has grown since NAFTA was disbanded.
Canada uneasy about Biden-Trump rematch in US
“Geography has made us neighbors. History has made us friends. Economics has made us partners, and necessity has made us allies,” John F. Kennedy said in a 1961 speech to Canada’s parliament.
Politicians and columnists like to refer to that quote whenever they consider the warm and enduring relationship between Canada and the United States. But Canadians are watching with a mounting sense of dread as Americans set up a potential rerun of the 2020 election, with Donald Trump, 76, facing off against Joe Biden, 80, for a grudge match that promises to be as distasteful as a punchup at a nursing home.
Until Tuesday, it seemed possible that Biden might decide he would prefer to spend more time with his family, or napping, and let someone in their 70s take over. But, no. He’s in.
And this week, Trump started to look like he has a lock on the GOP nomination. Of course, it is still early. By this time in the 2016 cycle, Trump had not even declared, and the Times’ resident poll interpreter was predicting an easy win for Jeb Bush. Lots can happen before the Republicans meet in Milwaukee next July, but I think we all know the arc of history is bending toward the “rough beast” of Mar-a-Lago.
The first big clue was the reaction of Republican voters to his indictment for allegedly funneling hush money to a porn star, which was apparently just the signal that on-the-fence Republicans were waiting for. The second was the continued failure of Florida Gov. Ron DeSantis to respond effectively to Trump’s putdowns, a familiar pattern from 2016 when Trump ran his hapless rivals through the woodchipper one by one. Desantis is no better at handling the Donald than Sens. Ted Cruz or Marco Rubio and looked weird and rattled when asked about that in Tokyo this week.
So Americans look intent on setting their aging champions against one another again. Canadians can only say good luck, and may the best man win.
But if Canada had a vote, Trump would be out. Canadians prefer Biden by a huge margin, polls show.
PM Justin Trudeau, like most Canadians, will be pulling for Biden. Trudeau doesn’t seem as close to Biden as he was to Barack Obama, but they are progressive allies, and in Ottawa last month he and Biden announced a new border deal that allowed Canada to shut the irregular crossing at Roxham Road. The Inflation Reduction Act remains a worry for northern policymakers, since it may draw jobs and capital south, but in Ottawa, Biden spoke cheerfully about the opportunities for both countries. Trump, in contrast, created huge headaches for Trudeau when he was president with his confrontational approach to trade.
“The last time Trump was elected, it forced Canada to waste three years renegotiating its most important trade agreement,” says vice chairman of Eurasia Group Gerald Butts, who helped Trudeau negotiate that deal as his principal secretary. “And that's just one of many things that cause problems for Canada. In the context of a live shooting match with Russia, the prospect of a Trump presidency is existential for NATO. This ain't dairy policy.”
But could Trump help Trudeau win votes? Since the American election will likely happen before the next Canadian one, there might be an electoral upside for Trudeau. If he can link his Conservative opponent, Pierre Poilievre, to Trump, it could benefit the prime minister at the polls.
But politics isn’t everything.
“Elections are short term, and governments are long,” says Butts. “And it's not good for whoever is the government of Canada if Donald Trump is in the White House.”
It is not just Liberals who fret about Trump, says Janice Stein, founding director of the Munk School of Global Affairs & Public Policy at the University of Toronto.
“He’s a flamethrower. And that’s obvious now to everybody. So even people in Canada who like the message, and there are more than we think, there has to be some hesitation because he’s so erratic.”
Would Trump put the USMCA at risk? Experts say he’s unlikely to rip up the trade deal he negotiated as it would require him to undermine his own work.
“USMCA is up for review in 2025-2026,” says Stein. “I think it’s unlikely that he would tear it up a second time. And the Inflation Reduction Act is more protectionist than what Trump did.”
But that doesn’t mean the two men would get along. Christopher Sands, director of the Wilson Center's Canada Institute, imagines it would be a difficult relationship and one defined by “a cascade of negative vibrations.”
If things get too heated, it is even possible Trump could turn on Trudeau. “Trump would have no reason not to make him a foil and just say, ‘Well, yeah, look at Justin Trudeau. He thinks he's so smart. But what he did was he tried to pick our pockets, and we're gonna show him. We're gonna get rid of the USMCA, and we're gonna do this and do that,’” says Sands.
Whatever might happen between Trudeau and Trump, there are powerful forces in both countries that would act to protect the vital trade relationship. The US is Canada’s best customer, and vice versa. If that is threatened, business and labor would put pressure on governments to sort it out, no matter who is running either country.
Kennedy said our countries are friends, which makes us all feel good, but Henry Kissinger was likely closer to the truth when he said that “America has no permanent friends or enemies, only interests.”
The good news for Canada is that it is in America’s interest to get on with its neighbor.