Looking for Insight into the Future of Transatlantic Economic Ties? Watch What Happens to NAFTA.

Greg Anderson

Greg Anderson

University of Alberta (CANADA)

Dr. Greg Anderson was a DAAD/AICGS Research Fellow in March and April 2017. He is currently Associate Professor in the Department of Political Science at the University of Alberta (CANADA) and former Research Director (2009-2013) of the Alberta Institute of American Studies (AIAS) at the University of Alberta. He earned a BA and MA in American History at Brigham Young University and the University of Alberta, respectively, and completed his PhD in 2005 at the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University (Johns Hopkins/SAIS) in Washington, DC. During his time in Washington, he served as Policy Analyst (2000-2002) for the Western Hemisphere Office of the United States Trade Representative (USTR) under both President Bill Clinton and George W. Bush.

Dr. Anderson’s research has been funded by the Social Sciences and Humanities Research Council of Canada (SSHRC) and the U.S. and Canadian-based Donner Foundation. His teaching interests are broadly situated within the discipline of international political economy, particularly the political economy of North American integration. He has authored numerous pieces focused on Canada-U.S. relations, the politics of international trade and investment policy, U.S. foreign economic policy, and the impact of the global economy on forms of governance in venues such as The World Economy, the Journal of World Trade, and Diplomatic History. Greg’s recent writing has included a focus on the contemporary debate over foreign direct investment rules and the experience with investor-state dispute settlement (ISDS) within the NAFTA area. Dr. Anderson is also the co-editor (along with Dr. Chris Kukucha) of International Political Economy (Toronto: Oxford University Press, 2016). He regularly provides expert commentary for major Canadian radio, television, and print media outlets.

As a DAAD/AICGS Fellow in the Spring of 2017, Dr. Anderson will be advancing his research and writing on foreign direct investment rules and the controversies that have swirled around the U.S. and European experiences with them. More narrowly, Dr. Anderson’s project will focus on how those rules might have evolved in the proposed Transatlantic Trade and Investment Partnership (TTIP) and where they may now be headed in an era of anti-global populism on both sides of the Atlantic.

2016 was a tumultuous year in the political economy of trade. Populists have been on the march nearly everywhere—slowed, perhaps temporarily, by Dutch elections two weeks ago. At times, the target has been nothing less than the entire postwar order. More proximately, it’s the global economy, and the agreements that undergird it, that fuel the populist rage.

Last June, Great Britain voted to exit the European Union—Prime Minister Theresa May on Wednesday triggered Article 50 to begin with withdraw process, a process some predict could be an ugly divorce. In November, a similarly populist, anti-immigrant, anti-globalist electorate brought Donald Trump to the White House. President Donald Trump has made good on a lot of his anti-trade rhetoric; one of his first acts after taking the oath of office was to pull America out of the Trans Pacific Partnership—effectively leaving the other TPP countries at the altar.

Since 2013, the United States and Europe have been working on a much larger liberalization project; the Transatlantic Trade and Investment Partnership (TTIP). Trump has yet to formally suspend the TTIP negotiations, but given the chill he’s cast over the future of America’s economic relationships, he doesn’t have to. TTIP is unofficially in limbo.

Scholars, pundits, and America’s trading partners are scrambling to make sense of Trump’s economic agenda. Yet, insight into the future of transatlantic economic relations may come from—to continue with the marriage metaphors—the impending divorce in North America.

In addition to taking a wrecking ball to the TPP, Trump has promised to formally withdraw from NAFTA. Most now expect a “renegotiation” of North America’s economic relationships to begin in earnest later this year. For now, Canada and Mexico seem to be playing along—initiating their own domestic stakeholder consultations in preparation and, in an unusual display of unity, last month signalling a strong preference for trilateral talks.

Yet, it’s far from clear what will end up on the North America 2.0 negotiating table, including whether there will be one table with three chairs—one each for Canada, the United States, and Mexico—or if there will be two separate tables with entirely different sets of issues. In February’s press conference with Canada’s Justin Trudeau, President Trump said things would be “tweaked,” that it was a “…much less severe situation than what’s taken place on the southern border. On the southern border, for many, many years, the transaction was not fair to the United States. It was an extremely unfair transaction.”

Will the Canada-U.S. trading relationship get “tweaked” while U.S.-Mexican trade gets turned on its head? What will the practical difference mean? What parts of the existing NAFTA structure will survive a “renegotiation”?

A “hard divorce” (a la “hard Brexit”) would have consequences for all three countries. In 2015, Canada and Mexico combined took in just 33 percent of America’s exports—not small, of course. But for Canada and Mexico, the consequences are dire, each dependent on U.S. market access for, respectively, 77 percent and 81 percent of their export earnings. Regrettably, the signs are that the divorce settlement with Mexico could be bleak. Donald Trump has used Mexico as the poster-child for everything that’s wrong with America’s economic relationships. Moreover, I suspect Ottawa will quickly abandon the show of unity with Mexico City if more favorable terms with Washington are on offer. Hence, my bet is that divorce court in North America will actually be two separate courts; one for Mexico, the other for Canada.

Observers of transatlantic relations might want to pay a bit more attention to the terms of divorce with Canada. Apart from Canada being a “less severe situation” in Trump’s mind, any changes to the relationship with Canada will effectively set the agenda Trump pursues with other developed states; that includes a post-Brexit UK and the remaining 27 members of the EU.

NAFTA is devoid of the supranational pooling of sovereignty we see in Europe. Given Trump’s brand of nationalism, it’s not hard to imagine scrapping the limited institutionalization that does exist in the NAFTA area; dispute settlement on dumping and subsidy cases (Chapter 19), investment protections (Chapter 11), the NAFTA Commission (Chapter 20).

Will Canada and the United States take the opportunity to harmonize regimes in intellectual property protection and product testing or find ways to liberalize each other’s government procurement markets? Will there be strong investment protections, new disciplines in services, enhanced mobility for professionals, e-commerce, or competition policy? Or, will it all go the other direction with North America 2.0 fostering a narrowing, rather than an expansion and deepening of the agenda, even with America’s closest ally, Canada?

Whether we optimistically call it a “renegotiation” or lament the demise of NAFTA like a “divorce,” North America will be the first real test bed for Trump’s economic policy. Atlanticists ought to pay attention to how it all unfolds.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American-German Institute.