Trump's tough trade talk targets Mexico but his actions are hitting Canada

Almost every rally during Donald Trump's campaign for president featured two bogeymen who were harming the United States and who would be put in their place if he were elected: Mexico and China.

Trump's only comment about the country north of the border during that campaign was when a Canadian reporter asked him if he was also advocating a wall between the U.S. and Canada.

"I love Canada," Trump replied.

And yet, since taking office in January and appointing Wilbur Ross as secretary of commerce, Canada has received more attention. While the U.S. has taken some trade action against China, and one minor step against Mexico, the heaviest hits have been aimed at Canada.

In July, the U.S. Commerce Department imposed a 19.52 per cent countervailing duty on emulsion styrene-butadiene rubber from Mexico. Punished alongside Mexico were rubber producers in Brazil, Korea and Poland.

The duty will hardly cripple Mexico's economy; the value of the entire U.S.-Mexican trade in this obscure product is a mere $23 million.

China fared somewhat worse, or at least, Chinese producers of cold-drawn mechanical tubing, tool chests, aluminum foil, carton-closing staples and a chemical called 1-hydroxyethylidene-1, 1-diphosphonic acid (HEDP) fared worse. All were slapped with countervailing duties.

The total value to China of trade in all of those products combined is $1.77 billion.

How does that compare to the beating Canada has taken?

The value of Canada's softwood lumber exports to the U.S. alone is estimated at $5.66 billion. The contract between Bombardier and Delta Airlines, now threatened by tariffs and duties imposed on the Canadian company, is also thought to be about $5 billion.

None of the actions the Trump administration has taken against any of its trading partners have caused the same kind of pain as its actions against Canada.

Sweet deal for Mexican sugar?

While Canada negotiates to save the North American Free Trade Agreement (NAFTA) under the shadow of an ongoing softwood lumber dispute, Mexico has been able to set aside its own perennial irritant with the U.S.: sugar.

In many ways, the dispute between Mexican and U.S. sugar producers mirrors the softwood lumber battle with Canada.

Both disputes date back to the beginning of NAFTA. As with softwood, the sugar dispute has been through a series of negotiations, in which the U.S. pressures Mexico to accept conditions that amount to a system of managed trade intended to protect U.S. producers and refiners.

This year, the Trump administration pressed Mexico to reopen the last agreement, reached in 2014, and accept more restrictive conditions.

Mexico was forced to make concessions, and yet it fared better than Canada, which was not offered the option of softwood renegotiations and was simply slapped with duties.

Moreover, the U.S. Department of Commerce was willing to resist pressures from U.S. industry, announcing a deal over the opposition of the American Sugar Alliance.

With Canada it's been a different story. The Department of Commerce took the position of the U.S. lumber coalition almost to the decimal point.

There was a difference in tone too. Announcing the sugar deal with Mexico, Ross said he was "glad all parties have agreed that the new sugar agreement is fair and addresses the shortcomings of the original deal.

"Thank you to our industry partners, as well as our Mexican counterparts, for their hard work," he said. 

The day his department imposed a tariff on Canadian lumber imports, he issued an indignant statement that also referenced a dispute over U.S. dairy exports to Canada:

"This is not our idea of a properly functioning free trade agreement."

The gap between rhetoric and action hasn't gone unnoticed in the U.S. A New York Times headline last week pointed out that "Trump Talks Tough on China and Mexico, but Trade Actions Hit Canada."

What's going on?

Trade experts on both sides of the border have speculated that one reason for aggressive U.S. trade actions against Canada is to create bargaining chips for NAFTA renegotiations.

So, why isn't the U.S. working equally hard to create new bargaining chips with Mexico?

Canadian trade consultant Peter Clark led many Canadian trade negotiations as a public servant and was special trade advisor to the parliamentary committee on implementation of the Canada-U.S. Free Trade Agreement.

He said the answer is simple: The Americans fear Mexico more than Canada.

"They think they can probably get us to react favourably, without the type of retaliation they think they would be sure to get from the Mexicans. The Mexicans have hit and hurt them before, and they would be sure to do it again."

Mexico is the biggest export market for America's top agricultural product: corn. And while Mexico can't unilaterally block U.S. corn imports under NAFTA, it buys its corn in government-supervised block purchases and it is free to buy wherever it wishes.

Already Mexico has increased corn purchases from Argentina and Brazil, causing politicians from the U.S. corn belt, like Iowa Senator Chuck Grassley, to warn the Trump administration against any further provocation.

Mexican officials have shown considerable skill in past trade disputes, targeting their trade actions in order to apply pain to particular regions and segments of the U.S. economy they feel are leading the protectionist charge against them.

"It's been pretty clear in our informal discussions with them that they'd do it again," said Clark.

And, he said, Mexican officials also don't hesitate to use issues that have nothing to do with trade to make their points, including threats to abandon co-operation with the U.S. on important issues such as interdicting drugs or stopping the flow of Central American migrants through Mexico to the U.S. border.

"The Mexicans can get pretty extreme," said Clark.

Canadian hardball

Clark's view is that Canada could benefit from ditching its polite and reasonable approach and imitating Mexico's more hard-nosed tactics, targeting the elected officials who are pushing a protectionist agenda.

"There are 25 key supporters of the U.S. Lumber Coalition. I would go after each of those senators, and start to make life miserable for the exporters from their state."

To get around the NAFTA prohibition on open retaliation, Clark suggests following the example of 1980s Liberal trade minister Ed Lumley.

"When Lumley couldn't get anywhere trying to moderate the flow of Japanese cars coming into Canada, he simply ordered customs at Vancouver to inspect the cars one-by-one as they were unloaded."

"There's no specific rules you have to break. You just have to be anally bureaucratic."