More groundwork needed to maintain Canada-U.S. relations, summit hears

TORONTO — More needs to be done to maintain North American relations in an increasingly competitive and volatile world, and as a U.S. election approaches, attendees at a conference in Toronto heard on Tuesday.

Canada needs to lay more solid groundwork today to avoid being surprised again on trade agreement talks, said Darryl White, chief executive of BMO, which co-hosted the US-Canada Summit with Eurasia Group.

“It’s fair to say that business communities and the public were caught pretty much off guard when NAFTA was revisited,” said White.

“We need to be more ready this time.”

He said Canadians don’t understand the level of opposition there was in the U.S. to the agreement, and that it’s crucial to widen support for the trade relation.

“Private- and public-sector leaders must ensure that Main Street benefits of deeper partnerships in an increasingly complex world are well understood.”

The importance of maintaining full access to the U.S. market is being emphasized by how much stronger it’s currently performing.

Frances Donald, chief economist at Manulife Investment Management, noted how much the U.S. economy is diverging from Canada’s to the point that it’s “problematic.”

Retail sales in the U.S. are still growing while they’re falling in Canada despite the ballooning population, GDP per capita growth has fallen for the last seven quarters in Canada, and productivity continues to lag the U.S. to the point where it’s 40 years behind.

“The U.S. and Canadian economies are diverging, and they’re diverging pretty substantially,” Donald said.

But U.S. Ambassador to Canada David Cohen went some way to assure attendees that there’s no seismic shift approaching as the North American trade agreement comes up for renewal in 2026.

“It’s not a renegotiation,” said Cohen.

“It’s a review … there is no interest in the United States in renegotiating.”

There is concern those expectations could shift notably if Donald Trump is elected, but Cohen said there are institutional forces that don’t change with a single election that should help maintain some stability.

Trade agreements also have to be adapted to make sure they’re doing enough for workers, said Elizabeth Baltzan, a senior advisor to the U.S. Trade Representative.

She said that the globalization trend of simply removing trade barriers has shown its limitations, and there’s more need to factor in geopolitical and market concentration risks, as seen with China’s manufacturing dominance.

“As we look at how trade policy is changing, we owe it to democracies, to our people, to make sure that the policies are responsive to our lived experiences.”

It’s important for Canada, the U.S. and Mexico to figure out together how to respond to non-market policies and non-democratic countries, she said.

“We didn’t really take those risks fully into account, so now we’ve got to have a trade policy that is responsive to those challenges.”

But as Canada looks ahead to potential trade talks, limited defence spending could be an issue, especially if Trump is elected, said several panellists.

Foreign Affairs Minister Mélanie Joly looked to assure those gathered that Canada has heard criticism and plans to ramp up spending.

“Canadians are now understanding that the world has changed and we need to invest more in defence.”

In April, the federal government announced plans that would get spending toward 1.76 per cent of GDP by the end of the decade, though that’s still short of the two per cent NATO commitment.

While the ongoing shortfall is a source of tension with some U.S. politicians, Joly said Canada is aiming to ramp up spending further.

“I’m convinced that we can be on a path to two per cent,” she said.

The importance of defence spending comes as the world faces conflicts on several fronts, said Ian Bremmer, president and founder of Eurasia Group.

“We are in a materially more dangerous place than we were a year ago.”

Bremmer said he thought it was a little more likely that Trump would be elected, but it’s still quite unclear. He said the foreign policy implications of a Trump presidency might be less than expected, as his cabinet could well be stocked with experienced people, but it could lead to more authoritarianism in the U.S. that could affect Canadian systems.

He said Robert Lighthizer, Trump’s chosen trade negotiator last round, won’t be easy to deal with, but it will be possible for Canada to work with him.

“He will be dealt with professionally by Canadians, and I think that will work.”

He said that given all the uncertainty in the world, it’s all the more important to maintain relations between Canada and the U.S.

“This relationship is no longer just nice to have, it’s increasingly strategically essential.”

This report by The Canadian Press was first published June 11, 2024.

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Ian Bickis, The Canadian Press