Canada and U.S. Meet as Trump Moves Ahead With Mexico Trade Deal

Canada’s foreign minister, Chrystia Freeland, headed to Washington on Tuesday to discuss the trade pact after President Trump threatened to move ahead with just Mexico.

WASHINGTON — A day after President Trump threatened to exclude Canada from a revised North American Free Trade Agreement, top Canadian officials raced to Washington and said they were moving “full steam ahead” to try to reach a compromise that could save the trilateral pact.

“This is a really big deal,” Chrystia Freeland, Canada’s foreign minister, said on Tuesday after meeting with the United States trade representative. “We are encouraged by the progress that the U.S. and Mexico have made, particularly on cars and labor,” she said, adding that those concessions were “going to be valuable for workers in Canada and the United States.”

The last-ditch discussions come as Canada faces an ultimatum from the Trump administration, which has promised to ink a trade deal with Mexico in days and leave Canada from the pact. Ms. Freeland, who cut short a trip to Europe to fly to Washington, must now decide by Friday whether to join a revised pact that has been a source of contentious negotiations for a year or allow her country to be cast out of an agreement that has been critical to its economy.

“We will, as we have done throughout this negotiation, stand up for the Canadian national interest and for Canadian values while looking for areas where we can find a compromise,” she said, before heading to meet with Mexican officials.

Canada may have little choice but to sign onto the pact. In the nearly quarter century since Nafta went into effect, various industries like automakers and food suppliers have built coordinated supply chains across the continent. If those links are splintered by new trade agreements, “we’re clearly left off worse than we were before,” said Christopher Wilson, the deputy director of the Wilson Center’s Mexico Institute.

The effects would be especially severe for the global auto industry, which has built its supply chain around North America and relies on materials and components from Canada. Auto industry groups warned that a Nafta without Canada would drive up prices for American manufacturers and make them less competitive with foreign companies.

“It is imperative that a trilateral agreement be inked,” Jay Timmons, the president and chief executive of the National Association of Manufacturers, said in a statement.

Mr. Trump’s top trade advisers reiterated on Tuesday that the United States was prepared to notify Congress of its intent to complete a deal with Mexico on Friday unless Canada quickly got on board.

“Well, this deal is pretty well put together with Mexico. So the president, as he’s indicated, is fully prepared to go ahead with or without Canada,” Wilbur Ross, the commerce secretary, said on Tuesday morning. “We hope that Canada will come in.”

Mr. Ross, speaking on Fox Business, said he was confident that Canada would ultimately join the deal because its economy “can’t survive very well” without the United States.

Steven Mnuchin, the Treasury secretary, suggested in an interview with CNBC that the United States and Canada could strike a separate bilateral deal if an agreement was not reached by Friday.

“The U.S. market and the Canadian markets are very intertwined,” Mr. Mnuchin said. “It’s important for them to get this deal and it’s important for us to get this deal.”

Mr. Trump has also said the United States could sign a deal with Canada at a later date. But economists cautioned that a patchwork of bilateral deals would have very different implications for the North American economy than the single comprehensive agreement currently in place.

“Our industries have integrated so much together that it’s hard to unravel it at this point,” said Jeffrey J. Schott, a senior fellow at the Peterson Institute for International Economics.

The Nafta negotiations over the past year have focused largely on the rules governing the automobile industry, including what percentage of a car must be produced in North America to qualify for the agreement’s zero tariffs. At the urging of the Trump administration, Mexico has agreed to a slew of new rules that would require car manufacturers to produce at least 75 percent of an automobile’s value in North America, up from 62.5 percent previously.

The new rules also stipulate that automakers must use more local steel, aluminum, glass and parts, and have 40 percent to 45 percent of the vehicle made by workers earning at least $16 an hour — a provision meant to benefit the higher-wage countries of the United States and Canada.

But these rules were written with the participation of all three North American economies in mind, said Jennifer A. Hillman, a professor at Georgetown Law Center. Cutting out Canada, which is a major supplier of aluminum, steel, automobile components and other goods, could upend the automobile industry’s calculus, making the administration’s proposed rules far more cumbersome than they are already.

“If you can’t include Canada, I’m not sure if they want the rules as they are now,” Ms. Hillman said.

The North American automotive industry is tightly integrated across all three countries. The Ford F-150, for example, although known as a classic American truck, has an aluminum body made with metal sourced from Quebec and window wipers and pistons from Mexico, as well as an engine and transmission produced in the United States.

Charlie Chesbrough, a senior economist at Cox Automotive, said the new trade rules appeared to be a mixed bag for automakers. They are likely to encourage slightly more production in North America, but also push vehicle prices higher, raising costs and decreasing sales. “In the end, they may produce a little more here, but sell a little less,” he said.

He added that manufacturers were unlikely to make any major moves in the short term because changes in production take years of planning. “They can’t change on a dime,” he said.

Canada has its own considerations in deciding whether to join the deal. Leaders there will have to weigh the optics of looking as if they are being strong-armed into a Nafta deal, especially given Mr. Trump’s unpopularity in Canada and a coming election for Prime Minister Justin Trudeau of Canada.

Since Mr. Trump imposed tariffs on Canadian steel and aluminum and insulted Mr. Trudeau as “weak,” the country has coalesced behind its leader and hardened his resolve to get a trade deal that is good for Canadians. Mr. Trudeau has banked his leadership not just on getting a good deal for Canadian workers, but a progressive deal, with chapters on the environment, gender and indigenous rights. He has also defended Canada’s supply management program on dairy and insisted that a sunset clause is a deal breaker.

However, given that Canada has just over one-tenth the population of its superpower neighbor, and that it sends about three-quarters of its exports to America, the prime minister’s bargaining hand is limited.

“It really puts the prime minister and Minister Freeland in a tough spot,” said Bill Anderson, the director of the Cross-Border Institute at the University of Windsor in Ontario. “From the Canadian perspective, being asked to turn on a dime, here’s the deal, take it or leave it, is offensive. But at the same time, the Canadian government is very pragmatic. I don’t think they will walk away from a deal and end up with nothing.”

In a briefing Monday about the deal, Robert E. Lighthizer, the United States trade representative, denied that the tight timeline was a power play intended to pressure Canada, and insisted that after a year of intense negotiations, Canada and the United States were on the same page on many issues.

“This wasn’t designed to put pressure on anyone or anything like that,” he said, pointing out that the countries had gone through seven rounds of negotiations and “literally tens of thousands of hours” of talks that were either between the United States and Canada or all three nations. “It isn’t like Canada is coming in at the last minute.”

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