Stunning Canadian Trade Reversal Now Seems Increasingly Likely – Nervous Freeland/Trudeau Trying to Position for Political Face Saving…

During analysis of the U.S-Mexico trade agreement terms it became obvious that *if* Canada was going to join the pact they would have to almost completely acquiesce and reverse on their former positions.   It now is entirely plausible that just might happen.

When entering the meeting with U.S.T.R. Robert Lighthizer, Canadian Minister Chrystia Freeland spoke specifically about “Canadian workers”.  Justin from Canada has been very cautious in his word choices also speaking about “Canadian workers”.  As Freeland exited the first meeting with Lighthizer the reasoning for their collective word choice is becoming apparent.  Canada is preparing to take a knee, and they are positioning for the least amount of political damage possible.  WATCH the exit of first meeting:


Team Trump has positioned this perfectly. By using NAFTA section 2202, to construct a modification of the original 1993 agreement, Lighthizer is intending to send a 90-day notification letter to congress informing them the U.S. and Mexico have agreed to modifications of their bilateral trade agreement.

This approach allowed Trump/Lighthizer to positioned Canada with a take it or leave it option.  If Canada didn’t accept, Lighthizer files a simultaneous section 2205 notification withdrawing the U.S. from a NAFTA partnership with Canada.  If Canada did accept Lighthizer adds them to the 2202 (modification) notification.

A 2205 withdrawal meant Canada and the U.S. would need to enter a bilateral trade deal entirely separate from the U.S-Mexico deal.  President Trump already publicly said what the terms of that bilateral would entail.  In the interim he would initiate a 25% tariff on Canadian made automobiles (massive leverage).

However, in order for Canada to accept or join, via 2202 modification, they would need to agree to the modification terms.  For Canada they would have to: drop their protectionist tariffs on the dairy sector, open their telecommunications and banking sectors and eliminate the subsidies on aeronautics and soft-wood Lumber sectors.   In essence open their economy to fair market competition and agree to intellectual property protections.

Canada had to choose between taking on Trump individually, a NAFTA withdrawal, or accepting the terms of modification.  The prism for Canadian decision-making is entirely about politics.  Justin and Chrystia have to make a political decision, or change their perspective and look at the economics.  Incredibly, it now appears Canada is going to accept the modification route.

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