While Donald Trump ’s tariff gambit spared his Nafta partners for now, Canada and Mexico are pledging it won’t make them budge at the bargaining table.
Trump on Thursday indefinitely exempted the two countries from steel and aluminum tariffs “at least at this time.” Canadian Finance Minister Bill Morneau said Friday that “actually bodes well” for talks to update the 1994 North American Free Trade Agreement, and Trump said he had a feeling there’ll be a deal on Nafta.
Canada and Mexico, though, gave no signal that they’d bow to Trump’s bargaining chip. Canadian Foreign Minister Chrystia Freeland called Nafta and the tariffs “quite distinct issues” and said “our negotiating positions are absolutely unchanged.” In a written statement, Mexico’s Economy Ministry said: “The negotiation process for the modernization of Nafta follows its normal course.”
The seventh round of Nafta talks ended Monday with some progress on minor issues, and a U.S. willingness to “compromise.” Negotiations began in August, missed a December target and look set to continue through another soft deadline this month. Canada and Mexico pushed back staunchly against steel and aluminum tariffs, with Canada in particular saying it’d be inconceivable to slap them on a close military ally under justification of a national security risk.
Trump nonetheless threatened to impose tariffs after all if a deal to update Nafta falls through, and called on Mexico and Canada to do more to stop trans-shipment of steel and aluminum through their countries and into the U.S.
The exemption isn’t a big positive for Canada, said Doug Porter, chief economist at BMO Capital Markets. “It’s a bit like the schoolyard bully saying he won’t beat you up today, so long as you agree to a deal to hand over your lunch money tomorrow,” he said in a research note Friday.
Morneau, speaking in New York, said the government is “already very focused” on making sure Canada isn’t being used as a staging ground to circumvent U.S. tariffs and would redouble efforts. “It’s not a problem today, but we’re going to have belts and suspenders on this issue,” he said. Mexico too pledged to continue to “search for a long-term solution” on steel oversupply.
Sword of Damocles
The Canadian finance minister—who said he spoke with Treasury Secretary Steven Mnuchin three times in the past week in pushing for an exemption—was asked whether tariffs amount to a sword of Damocles, hanging over Nafta. “We don’t see it that way at all,” he replied. Instead, the tariff exemption indicates “as we think about Nafta, we recognize our interdependent relationship and can work together to get to a conclusion that works for both of our two economies.”
No date has been announced for the next round of talks. U.S. Trade Representative Robert Lighthizer has said nothing was firm, while the Canadian and Mexican ministers publicly capped the last round by saying they’re looking forward to April talks in Washington. There are warnings the negotiations could stretch through upcoming election in Mexico this summer and in the U.S. later this year.
“It’s possible that this can get kicked to the end of the year or later,” Linda Hasenfratz, chief executive officer of auto parts maker Linamar Corp., said in a March 7 earnings call. “We need to all continue to encourage all three governments to remain committed to Nafta.”