After U.S. shuts down Canadian trade talks with China, it now aims to do the same with EU, Japan

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Prime Minister Justin Trudeau and Minister Chrystia Freeland speak with journalists following the conclusion of USMCA negotiations in Ottawa. Photo: Adam Scotti/PMO

After the United States signed the United States-Mexico-Canada Agreement (USMCA) with Canada and Mexico, senior Trump administration officials fanned out to sell the deal as part of a new American geopolitical strategy.

In ongoing talks with Japan and the European Union (EU), the U.S. plans to use the precedent created by a concession granted in the USMCA to advance the American goal of isolating and punishing China for its trade practices.

Having extracted from Canada and Mexico -- in Article 32:10 of USMCA -- a promise that they would not sit down to negotiate a trade agreement with a non-market country -- like China -- without getting approval from the U.S., the United States Trade Representative Robert Lighthizer plans to get Japan and the EU to accept the same constraint.

The Chinese Embassy in Ottawa reacted vigorously to the non-market clause, calling it "dishonest behaviour" and objecting to the exercise of U.S. dominance.

U.S. Commerce Secretary Wilbur Ross described the non-market clause as a poison pill to ensure that neither Canada nor Mexico tries to negotiate with China. Indeed the USMCA clause allows the U.S. to terminate the trilateral deal should either of its partners try and do a deal with China.

White House economic adviser Peter Navarro is the author of a book with the not-so-subtle title of Death by China, a dubious narrative that plays to U.S. paranoia about China, and advances the Trump agenda of Making America Great Again.

Lighthizer has been waging an anti-China campaign for years. His past aggressive testimony before the U.S. Congress attracted the attention of the America First Trump team.

His demonstrated willingness to use U.S. power against trade competitors goes back to the Reagan era when Lighthizer as trade negotiator forced Japan to adopt "voluntary" export quotas for autos, a preview of similar auto quotas in the USMCA. 

To get what the U.S. trade representative wanted from Canada, the big stick was the threat of 25 per cent tariffs on Canadian auto exports. Though Canada has condemned these Section 232 National Security tariffs as illegal, U.S. negotiators calculated that Team Trudeau was not going to risk imperilling Canada's major manufacturing sector to fight them.

A USMCA side letter on autos provides Canada with an export quota -- comfortably above current auto export levels -- in the event the U.S. brings in Section 232 tariffs against foreign auto imports. In effect, Canada tacitly recognized the legitimacy of the National Security tariffs, while suing to have the same Section 232 tariffs on steel and aluminium withdrawn.

As they negotiate with the U.S., Japan and the EU are facing U.S. threats to invoke Section 232 and apply 25 per cent auto tariffs on exports.

In return for foregoing the auto tariffs, Japan and the EU are supposed to join the anti-China coalition the Trump administration expect to put together.

Membership requires that those who want bilateral trade deals with the U.S. make a choice: you can deal with the U.S. or you can have a deal with China, but not both.

As an incentive to bring the EU, Japan and other potential anti-China coalition partners to the table, the U.S. has a strategy of weakening the World Trade Organization (WTO) and leaving countries without recourse against American protectionist attacks.

By refusing to approve the nominations of new judges for WTO dispute panels, the U.S. has member states concerned that the WTO will simply fail to function as a court of trade law as early as late next year, when the current roster of judges will be too depleted to operate.

EU Trade Commissioner Cecilia Malmstrom sees the Fortress North America approach championed by Washington as seconded by Canada's acceptance of the legitimacy of Section 232 National Security Tariffs in the USMCA.

By establishing bilateral deals as the new alternative to the universal multilateral WTO, formally an American-sponsored institution, the U.S. is proposing to reset commercial relationships in the world economy.

In effect the U.S. is taking its successful "hub and spoke" trade negotiating strategy used to first bully Mexico then Canada into signing a fault-filled agreement, and applying it to talks with Japan and the EU.

Duncan Cameron is president emeritus of and writes a weekly column on politics and current affairs.

Photo: Adam Scotti/PMO

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