U.S. President Donald Trump, left, greets Justin Trudeau, Canada’s prime minister, as he arrives to the West Wing of the White House in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Nafta Snub Tests Trudeau’s Armor Against Trump’s Aggression

(Bloomberg) -- Justin Trudeau’s popularity among voters faces a fresh test after the U.S. left his top diplomat out of recent Nafta talks with Mexico.

While the Canadian prime minister does well in opinion polls when taking on President Donald Trump, he also knows he needs to dispel the perception he’s more about flash than substance.

Both factors will be in play as Canada responds to the Trump administration’s new focus on talks with Mexico. Trudeau’s team, led by Foreign Minister Chrystia Freeland, has been rebuffed in recent attempts to discuss changes to the North American Free Trade Agreement, according to three people with knowledge of the negotiations.

The push with Mexico may simply reflect U.S. Trade Representative Robert Lighthizer’s desire for a breakthrough on the crucial issue of rules for car production. The U.S. wants provisions that would blunt the advantage Mexico enjoys due to cheaper wages.

But Trump has made clear his preference for one-on-one deals with countries, which he believes gives the U.S. a negotiating edge. And less than two months ago, the president unleashed a Twitter tirade against the Canadian prime minister, calling him “very dishonest and weak” after Trudeau said he would push back against U.S. steel tariffs at a Group of Seven summit in Quebec.

Government Response

Canada hasn’t been excluded from the talks, according to a Canadian government official who asked to remain anonymous because the negotiations are private. The country encourages the U.S. and Mexico to talk to each other, and in order for the three countries to reach an agreement, the U.S. and Mexico largely have to sort out issues between them, autos being the primary one, the official said.

Even though Nafta is trilateral, the negotiations themselves have largely been bilateral, the official said, adding Freeland and Lighthizer mutually agreed last week there was no reason for Canada to participate this week because the focus was on the U.S. and Mexico.

David MacNaughton, Canada’s ambassador to the U.S., said the Nafta talks are progressing well and the auto issue appears close to being resolved. Some of the remaining issues need to be addressed in bilateral talks, while others will require all three countries, he said.

“I’m hoping we can get it done as quickly as possible, and we will be at the table working 24-7 if we have to to make it happen,” MacNaughton said in an interview Wednesday. “It would be great to be get it done by the end of August.”

Sunshine Snubbed

After Trump’s barrage, voter support for Trudeau’s Liberals jumped to the highest level since they won the 2015 election, according to polling by Nanos Research. The surge helped Trudeau recover from a bumbling trip to India in February, where he was mocked for parading through the country in a range of traditional Indian outfits.

Getting frozen out by the U.S. risks reinforcing the view that the 46-year-old prime minister, who has graced the cover of GQ magazine and is known for tweeting photos of his socks, doesn’t have the mettle to negotiate a good deal for Canada.

“It’s tough for him. He tried from the beginning to make the relationship work, but over time Trump has not rewarded that sunshine policy with any tangible benefits,” said Christopher Sands, director of the Center for Canadian Studies at Johns Hopkins University. Trudeau “has to be firm but always constructive and willing to engage.”

Freeland, who warned last week auto tariffs have the potential to be “really devastating” to the global economy, has also said Canada wants a good deal on Nafta rather than any deal, suggesting the country could walk away before making concessions. Hanging over negotiations is Trump’s threat of auto tariffs, which could have an outsized impact on the Canadian economy, causing growth to slow and inflation to rise, Bank of Canada Governor Stephen Poloz said last month.

Meanwhile, Trump said last month he’s heading toward a “dramatic” deal with Mexico and that he may prioritize bilateral trade talks with the southern neighbor over Canada. Lighthizer blamed Canada for standing in the way of progress.

“If Canada wants to go forward on this, they’re going to have to find something to gain the attention of the Americans and push this to conclusion,” said Mark Warner, a trade lawyer and principal at Toronto-based MAAW Law. “They might have to compromise on some of the issues that they’ve been characterizing as red line issues.”

Opposition Waiting

The opposition Conservatives, who governed the nation for nine years under Stephen Harper, are waiting in the wings under their new leader, Andrew Scheer. Over the past month, the Conservatives have closed most of the polling gap, with the next national election scheduled for October 2019. Scheer has accused the Liberals of putting Nafta at risk by pushing a “progressive” update to the trade deal with greater attention to gender and environmental issues.

Trump’s street-brawl tactics have outraged many Canadians. The mayor of Ottawa refused an invitation to attend a Fourth of July party at the U.S. ambassador’s residence in the nation’s capital. Seventy percent of Canadians say they’re willing to boycott American-made products, according to a poll by Ipsos Public Affairs in June.

But the same poll shows 85 percent of Canadians back their country staying in the 24-year-old trade pact with the U.S. and Mexico. More Canadians believe that renegotiating the deal is a good idea, according to the survey.

Canada could find itself in a position where the U.S. and Mexico come to an agreement on key aspects of the deal, and the Trudeau government is told to “take it or leave it,” said Peter Clark, a trade consultant and former Canadian government official. “We’re between a rock and a hard place. I don’t see an easy way out.”

©2018 Bloomberg L.P.