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William Watson, Fraser Institute: Is Canada’s latest NAFTA strategy too ‘insidious and crafty?’
Monday, 15 January 2018 - 9:15am
In Book IV, Chapter 2 of The Wealth of Nations, where he enumerates the benefits of free international trade, Adam Smith leaves only a tiny role for governments. He says the United Kingdom should support its merchant marine because during wartime many of its members switch over (or get dragooned) to the Royal Navy. And he thinks the details of trade negotiations, including the possibility of retaliation against foreign trade provocations, should be left to professionals. As he puts it:
To judge whether such retaliations are likely to produce [a favourable] effect does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs.
I thought of this passage when hearing of Canada’s comprehensive complaint to the World Trade Organization, covering actions going back not quite to Smith’s time, of the United States’ alleged misuse of “contingent protectionism,” that is, retaliation against our supposed subsidy of exports or our firms’ decisions to sell their products below cost for competitive advantage.
Mind you, Canada invented contingent protectionism, way back in 1904, so we’re not exactly innocents in this area. But the idea of hitting the Americans hard on their aggressive use of contingent protection will appeal to lots of Canadians, not just those who are temperamentally anti-American and always want to hit the U.S. hard.
So the WTO complaint feels good. But is it wise? That obviously depends how the Americans react. Can anyone alive, let alone in Canada’s employ, predict that?
The NAFTA renegotiations, now almost six months along, clearly aren’t going well. The U.S. has proposed changes, such as a five-year term to any new agreement, that are every bit as silly and unrealistic as our own official desire to entrench social justice, gender equality and, I don’t know, world peace and universal friendliness in the deal.
On the other hand, the status quo, if we could keep it, isn’t half bad. Important U.S. interests don’t really want NAFTA renegotiated while Congress, where such interests can be influential, has a big say in what eventually happens. In fact, to the extent any new deal requires implementing legislation, which it likely will, Congress has a veto.
Renegotiating NAFTA was an important plank in President Trump’s campaign platform. But so was “the wall” and so far the wall isn’t being built. The best possible NAFTA outcome for Canada is that after a year or 18 months of presidential venting and tweeting the negotiations just fade away. The worst is that Canada itself provides the excuse for the White House and Congress to act together to tear up the current deal and essentially go unilateral on trade. The risk in a comprehensive complaint to the WTO is that it is just such a smoking excuse, as it were.
Adam Smith says the councils of statesmen and politicians are “directed by the momentary fluctuations of affairs.” Ordinarily they are. But the Trump administration is no ordinary council. The day I’m writing this the New York Times’ lead editorial is titled: “Is Mr. Trump nuts?” The Times’ answer is in effect: not in any way people didn’t know about before they voted and not in any way that will persuade a Republican Congress to act, as they would have to do in order to remove the president from office using the 25th amendment to the Constitution.
Whether he’s nuts or not, President Trump will have a big say in what happens to NAFTA. Our prime minister is known worldwide as something of a Trump-whisperer. But even he seems unlikely to have the key to how the president’s mind works. In real life, it may be wise to stand up to bullies. In international diplomacy, especially when the bully holds most of the cards, finessing him may be a better strategy.
If NAFTA does explode, a tough stand at the WTO may be a good response—unless the president decides to blow up the WTO, too. But forcing the issue in the way we just have, well, let’s just hope our strategists aren’t being too insidious and crafty for their—and our—own good.