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Even a Democratic administration will not be easy for U.S. trading partners
FILE: Construction of the Gordie Howe international bridge June 21 2024 (Photo: George Thomas/Flickr, CC BY-NC-ND 2.0)
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Regardless of who wins on November 5th, U.S. trade policy for the foreseeable future will be defined by a bipartisan consensus toward protectionism.
A Kamala Harris presidency would certainly provide greater overall stability than the return of Donald Trump, but a new Democratic administration will not be easy for any U.S. trading partner.
Canada and other countries who trade with the U.S. must respond to this reality, preserve the existing benefits the international rules-based trading system has created, and push for co-operative approaches where feasible.
Practically speaking, this means an active ground game, connecting with Congress, governors and industry groups to explain the trade-offs of pursuing certain actions, just as Canadian officials did when Trump threatened to pull out of NAFTA, which was eventually replaced with the U.S.-Mexico-Canada Agreement (USMCA).
This strategy can help U.S. policymakers better reflect on their actions and minimize the harm imposed on their trading partners.
The G7, which will hold its annual meeting in Canada next year, is also a critical forum through which key U.S. allies can co-ordinate approaches to economic concerns, building a broader consensus for action and reducing the potential for trade friction.
Instead, if U.S. allies allow themselves to be picked off under the false belief that any country has a “special relationship” with the United States, they may all end up worse off. They may find themselves under pressure to adopt stances that they fundamentally disagree with, fragmenting approaches along the way.
The United States has taken a unilateral approach on a range of issues, some with significant trade consequences. For example, the Biden administration’s major climate legislation—the Inflation Reduction Act—received ample criticism for structuring a tax credit for the purchase of electric vehicles to go to cars that are made only in North America. When asked how other trading partners should respond, U.S. trade representative Katherine Tai encouraged them to pursue industrial policies of their own.
In short, if U.S. trading partners simply wait for a return to a more sensible policy, they may be waiting for a while.
A new trade policy for the “geopolitical turn”
Series | Trade in an era of global insecurity
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United States and Canada trade $3.6 billion (or US$2.7 billion) in goods and services every day. The stakes could not be higher. Unfortunately for Canada, a shift away from protectionism in the U.S. is unlikely. If anything, it could get worse.
The reorientation of U.S. trade policy began with the Trump administration’s “America First” posture. However, since then, vocal economic nationalists have been increasingly influential in both the Republican and Democratic parties as they have fallen under the spell of nostalgia and support for an economic retreat.
Their yearning for a romanticized vision of the past, with a working class employed in factory jobs, does not mesh with the reality of a services-dominant economy. But the images of shuttered industrial towns make for powerful political narratives.
Compounding this ideological transformation is a broader shift where economic security has become the organizing principle of U.S. foreign economic policy. Tariffs, export controls, sanctions, strategic investments and friendshoring have taken centre stage. Long-supported positive-sum approaches to trade have largely been abandoned, and replaced by zero-sum thinking.
Much of this shift is motivated by perceptions of U.S. decline and fears of China’s rise.
In 2023, U.S. National Security Advisor Jake Sullivan called for a new Washington consensus, arguing that the post-Second World War international economic order has cracks in its foundations that have “left many working Americans and their communities behind” and that growing geopolitical and security competition require a new approach.
This new approach is in its infancy but has taken on two general forms that contribute to fundamental changes in the existing rules-based trading system, as well as increased uncertainty among U.S. trading partners.
On the one hand, the United States is playing offence, seeking to alter the world trading system to better serve its interests and compel others to get on board with its approach. This has taken the form of sanctions, export controls, labour-standards enforcement, strategic dialogues and a growing interest in outbound investment screening.
Simultaneously, the United States is defensively trying to bolster its economic competitiveness through more selective international engagement, domestic investments and trade barriers.
This has taken the form of tariffs, strategies to support resilience and de-risking, and industrial policy. It has also meant the abandonment of past frameworks, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and an abdication of American leadership in developing new rules for digital trade.
These two broad buckets of actions highlight the new U.S. approach to trade and the impact it will have on efforts to strengthen and deepen ties with our trading partners.
Three features stand out.
First, the United States is exploring options for organizing international economic activity beyond – or outside – the multilateral trading system.
The new Indo-Pacific economic framework, which has no enforcement mechanism and does not provide market access, is a case in point. Sector-specific deals such as the agreement on critical minerals with Japan also break with longstanding U.S. practice to conclude comprehensive trade agreements.
Second, fear of China’s rise is driving U.S. unilateralism and extraterritoriality. Trading partners are often left with little choice but to go along with American policy. For Canada, this has meant aligning approaches in ways that undercut the rules-based international trading system.
One example is the Trudeau government’s recent decision to follow the U.S. in levying 100-per-cent tariffs on Chinese electric vehicles. Other U.S. trading partners have found themselves with little choice but to comply with a slew of U.S. export controls on critical technologies such as semiconductors and chip-making machinery.
This U.S. has also been using labour provisions in the USMCA deal to further its goals. For example, Mexico has been subjected to more than 20 actions against facilities located in the country, which are alleged to have violated workers’ collective bargaining rights.
However, a lack of due process in some cases and a general bias toward a specific U.S. interpretation of International Labour Organization standards have raised serious concerns about the intent and purpose of the agreement’s rapid response labour mechanism (RRM).
With Mexican factories critical to the competitiveness of the North American automotive sector, Canada should support changes to the procedural flaws and asymmetric application of the RRM in the USMCA’s sunset review, which will kick off in earnest next year.
Third, domestic concern about U.S. economic decline is spurring economic nationalism and trade protectionism.
While most Americans are aware of the benefits of free trade and the costs of protectionism, recent polls show they are not willing to reduce barriers without getting something in return. They prefer to “Buy American” unless it costs more – which is likely to happen – and they support tariffs when their political party imposes them.
For those holding on to hope that Kamala Harris’s criticism of Trump’s 10 to 20-per-cent across-the-board tariff proposal makes her a free trader, they may be sorely disappointed – even if she did once say: “I am not a protectionist Democrat.”
In practice, the Biden administration has maintained the vast majority of tariffs that the Trump administration imposed, mostly on U.S. allies. There is no indication that Harris would reverse that policy as president.
As well, the chances of any change are slim to none if Harris wins and retains U.S. Trade Representative Katherine Tai, who has quite openly embraced Trump’s trade policy and has admitted that there’s little difference between her and her predecessor Bob Lighthizer.
Without question, a second Trump administration would be profoundly disruptive. For Canada, it is clear what to expect – transactional trade policy and a likely renegotiation of USMCA due to Lighthizer’s clever ticking time bomb of a six-year sunset clause inserted into the deal.
Should Trump return, he would certainly encourage Lighthizer to take advantage of both Canada and Mexico through the sunset review, taking a dual-bilateral approach.
On the other hand, a Harris administration is not likely to prioritize trade policy, though common ground could be found on the intersection of trade and climate, where Canada has been a leader internationally.
The bottom line is that while the new occupant of the White House in 2025 could bring profound changes to many critical areas of foreign policy, the status quo on trade is likely to prevail and America’s trading partners should plan accordingly.
This article is part of the Trade in an Era of Global Insecurity special feature series.
This article first appeared on Policy Options and is republished here under a Creative Commons license.
