The U.S. Mid-Terms and the Future of Canada-U.S. Relations

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November 15, 2018

The U.S. Mid-Terms and the Future of Canada-U.S. Relations

The U.S. mid-terms and the future of Canada-U.S. relations

 The U.S. mid-term elections are second in importance only to the presidential election every four years.  Up for grabs last week were all 435 seats in the House of Representatives and one-third of the Senate, 35 seats in all, plus 34 gubernatorial contests and thousands of additional state and lower level positions.

The mid-terms are also generally the President’s to lose.  In the 18 mid-terms since 1946, only two presidents increased their party’s seat count in Congress—Bill Clinton in 1998 and George W. Bush in 2002—the rest all lost seats.

Last week’s mid-terms followed that long-established pattern with one exception: while the Republicans lost their majority in the House of Representatives, they increased their strength in the Senate:

  • In the House of Representatives, it is estimated that the Democrats will end up with a net gain of 35 to 40 seats, with several still undecided. These gains well exceed the 23 seats needed to win a majority, and over the past week have proven to be a stronger win for the Democrats than thought on election night.  They continue to win a strong majority of the close races still being counted.
  • In the Senate, by coincidence, 26 of the 35 seats up for election this year belonged to Democrats while only nine were Republican, meaning that the Democrats were always going to be playing much more defence than offence. After the wins and losses were tallied up, the Republicans increased their majority by a net one seat, largely by defeating Democratic Party incumbents in states that had voted strongly for President Trump in the 2016 election.
  • At the state level, Democrats captured the governorships of several key mid-west states that have substantial trading relationships with Canada, including Illinois, Kansas, Michigan and Wisconsin, while Iowa and Ohio went Republican. The Democrats also won six state legislatures.

Some major takeaways from the overall results:

  • While the Democrats easily won control of the House, at least two major future “stars” lost their races, but this will not be the last we hear of Andrew Gillum (Florida gubernatorial candidate) and Beto O’Rourke (Texas senatorial candidate). Look for both to be back on the national scene as the campaign for 2020 begins.
  • Voter turnout in last week’s mid-terms soared, with the New York Times estimating that some 114 million ballots were cast this year, well above the 83 million votes cast in 2014 and the 91 million ballots cast in 2010. The charitable view of this increase is that it represents a more robust democratic engagement; a more realistic take is that a divisive and partisan campaign motivated the respective bases to get their people to the polls, an outcome that is still good for American democracy.
  • With final votes yet to be tallied in close races, a record 100+ women were elected to the House of Representatives, at least 23 to the Senate, and nine as governors. Additional firsts in the House included the youngest-ever member of Congress, 29-year-old Alexandria Ocasio-Cortez in New York, as well as the first two Indigenous women elected in Kansas and New Mexico, the first two Muslim women elected in Minnesota and Michigan, and the first two Hispanic women, both elected in Texas.

What happens next?

The 115th Congress reconvened on Tuesday, November 13 in its “lame-duck” session, so named because it includes those members who did not run or were defeated in last week’s mid-term elections.  It will remain in session for about four weeks.  The newly elected 116th Congress is not sworn in until January 3.

On the policy side, a major priority will be to pass the seven (yes, seven) remaining of 12 separate appropriations bills required to keep the U.S. government open and operating beyond December 7th.  The issue of the border wall with Mexico will no doubt be raised as part of these considerations, since one of the bills specifically deals with funding for the Department of Homeland Security.  Other legislative priorities for the outgoing Congress may include sanctions against Saudi Arabia, the Farm Bill (the last of which expired on September 30th), and the Violence Against Women Act (VAWA) which was encompassed in the Continuing Resolution that expires on December 7th.

Over the coming six weeks, both parties will also be preoccupied by leadership issues as well as with deciding on chairpersons and memberships on key committees that deal with trade:

  • A major issue facing the Democrats is the state of their leadership in Congress. Current Minority Leader Nancy Pelosi wants the Majority Leader and Speaker of the House position in the 116th Congress, but she is a divisive leader who some in the party promised to remove and others refused to endorse during the campaign.  She has indicated that she does not want to remain Speaker for long, but re-ascending to the position is historic, having happened only once before. Pelosi is still a fund-raising machine and many junior members are beholden to her, making it fairly certain that she will retain the leadership of her party.
  • With the Democrats’ capture of the House, Representative Richard Neal from Massachusetts will likely take the helm of the House Ways and Means Committee (which manages the Trade Promotion Authority process). He is well-thought of on both sides of the aisle and will likely continue to work with Kevin Brady (the prior committee chair) to find a reasonable path forward on trade and taxes.
  • On the trade subcommittee, current Chair Dave Reichert (R-WA) is retiring; the Democrats’ Bill Pascrell (D-NJ) is the likely successor as chair. Pascrell has voiced significant concerns with the USMCA, including with the degree to which the Administration has held up its end of the deal for passage under the fast-track provisions of the Trade Promotion Authority Act of 2015.
  • The House Energy and Commerce Committee will also be newly empowered with the change in party. This committee has oversight of the Environmental Protection Agency and related regulatory actions. Recent moves by the White House to roll-back Obama-era (and earlier) protections for the environment could now be subject to the Congressional Review Act, should the Democrats wish.
  • As the Republicans come to grips with their loss of the House, they too will need new leadership there. Outgoing Speaker Paul Ryan (R-WS) chose not to run again, so the Republicans need a new Minority Leader.  This choice will likely involve a battle between the conservative and more moderate wings of the party.
  • In the Senate, Finance Committee Chair Orrin Hatch, (R-UT) is retiring, resulting in an open chairmanship on this committee. Senator Chuck Grassley (R-IA) is in line to succeed Hatch, but he may choose to remain as Chair of the Judiciary Committee. Retirements and mid-term defeats will result in several changes among committee members.

The new House and Canada-U.S. relations

For the past two years, the Republicans have controlled both sides of Congress, hypothetically making it much easier for the President to pursue his agenda. Democratic Party control of the House will change the power dynamic between the Administration and the legislative branch.  At the most general level, there are two potential outcomes of a divided Congress – one is deeper political polarization and legislative gridlock, which would slow down most legislative processes, and the other is increased collaboration – much like we see in Canada during minority governments.

The Democrats have some major choices to make in terms of how strongly and in what ways they choose to push their majority:

  • With control of the House comes the right to initiate studies and investigations, backed by subpoena powers. Some Democrats will be seriously tempted to inflict political pain on the Trump Administration over past indiscretions, and inevitably there will be a confrontation over the President’s tax returns.
  • Balanced against these partisan opportunities will be the desire of many Democrats to pursue their own legislative agenda to oppose the President’s, while pressing the issues they campaigned on such as health care, infrastructure investment and immigration. As always, there will be a desire among many Democrats to deny the President progress on any and all of his priorities.

It is way too early to speculate on the balance the Democrats will choose among these alternatives in establishing their ultimate approach to strategy vis-à-vis the Trump Administration. In terms of Canada-U.S. relations, it is a solid assumption that with the noted exception of how to deal with USMCA, their initial principal preoccupations will be domestic.  One likely victim of the Democrats’ taking of the House is the President’s promise for a middle-class tax cut, a move that would place even more pressure on Canada’s comparative competitiveness with the United States.

Ratification of USMCA in the new environment

With the draft USMCA having been reached between the U.S., Canada and Mexico in late September and the results of the mid-terms now in, ratification of the new agreement is Canada’s first priority in its relations with the U.S.

The President appears intent on continuing to pursue his trade agenda, tweeting post-election that he was congratulated on the results by “foreign nations (friends) that were waiting me out, and hoping, on Trade Deals. Now we can all get back to work and get things done!”  Trump’s enthusiasm does not extend to bringing the agreement before Congress in the lame duck sitting; House and Senate GOP leaders have already indicated this is not in the cards.

The Democrats have begun signalling their initial positioning on USMCA, calling for changes to the agreement’s provision that would require at least 30 per cent of the labour used to build each car in Mexico to be done by workers earning at least $16 per hour.  While that amount would rise to 40 per cent by 2023, the $16 wage is not indexed to inflation, which would cause the increase to be diluted over time.

Democrats are also concerned about the absence of enforcement details in the agreement.  “Without enforcement, you don’t have anything,” said Nancy Pelosi last week before the mid-terms.  “Most of all are the enforcement provisions in terms of labour and the environment. Enforcement. Enforcement. Enforcement.”  That said, efforts by the Democrats to push the parties to reopen the agreement for more negotiations will be firmly resisted unanimously by the three countries.

With control of the House now in the hands of the Democrats, it is clear that major labour unions and labour perspectives will be playing a strong and visible role in the ratification of USMCA.  USTR Robert Lighthizer has reportedly assured the President he has the support of the United Autoworkers Union, the United Steelworkers Union and the AFL-CIO on USMCA, but Leo Gerard, the Chairman of the United Steelworkers and Chair of the USTR’s labour advisory council, has strongly criticized USMCA as doing little “to curtail the illegal suppression of wages in Mexico.”  Clearly the courting of labour support for the details of the agreement will be critical to its ratification.

Detailed path to ratification

“Legal scrub”

 The three parties to the agreement are currently conducting a “legal scrub” to ensure the accuracy of the text that was negotiated earlier.  There have been reports that this process has been difficult, but Canadian sources have played down the disagreements as “normal.”

Signing on November 30

The USMCA will be formally signed on November 30th in Buenos Aires at the G-20 summit.  The signing will be low key affair, likely involving ministers and/or chief negotiators as opposed to leaders.  The timing of the signing is to enable outgoing Mexican President Peña Nieto to complete the agreement during his term; he leaves office on December 1st.

U.S. ratification is complex

The ratification processes in Mexico and Canada are both relatively straightforward. In the U.S., the Trade Promotion Authority Act of 2015 restricts how long the two chambers of Congress have to review and vote on the legislative package but does not impose a timeline on when the legislation must be introduced. The upshot is that the Administration can hold off on producing legislation until it believes it has the votes to pass it.

Thirty days before the legislation is introduced, the Administration must provide a final draft of the agreement text to Congress for consideration.  The legislation is then introduced to both houses simultaneously.  Once introduced, Congress has ninety sitting days to push the package through to completion – including committee reviews and ultimately an up-or-down floor vote.

U.S. will take the lead

It is expected that both Canada and Mexico will allow the U.S. to take the lead on its ratification process before introducing legislation to provide approval for USMCA in their respective countries.  Foreign Affairs Minister Chrystia Freeland confirmed this approach on November 14th, saying that Canada would defer to USTR Lighthizer on dealing with Democratic Party demands for changes to the agreement and moving it towards approval by Congress:

“When it comes to the U.S., it was the job of Ambassador Lighthizer to negotiate a deal that would be supported in his country.  Ambassador Lighthizer is a professional and I leave to him the U.S. political process and the U.S. ratification process.  Indeed, I think it would be really presumptuous for me or the government of Canada to presume we can get involved in the U.S. ratification process in the same way that I think we would consider it presumptuous for the U.S. to get involved in our ratification process.”

No Team Canada/”Maple Charm”

Freeland’s statement confirms a departure from the highly successful Team Canada/Maple Charm approach coordinated by Ottawa over the past eighteen months.  This was the comprehensive outreach program of federal and provincial officials that educated U.S. federal and state legislators on the depth and value of Canada-U.S. trade to their home constituencies and key industrial sectors, and on the benefits of economic integration of the North American economy.

While that initiative was hailed as a success from the Canadian perspective, it also grew to irritate the Americans, who regarded it as “over the top” interference.  Canada will now take a less aggressive approach and not get too far ahead of the U.S. in its approval process.

Steel and aluminum

As the signing of the agreement approaches at the end of November, the U.S. 232 steel and aluminum tariffs on Canada, and Canada’s retaliatory tariffs, continue to strain trade relations between the two countries. Progress on resolving the issue has been slow, notwithstanding the Prime Minister’s goal of getting a deal before the next G-20 meeting.  Canada’s provisional safeguards (quotas and tariffs) on certain non-US steel imports are also part of the chess match, much to the consternation of Canada’s steel importers and users.

Canadian consultation process

Once the three countries have signed the agreement, Canada will begin a consultation process between stakeholders and line departments on the necessary domestic amendments to federal legislation and regulations.  The process will be similar to the consultations conducted following the agreement with the European Community on CETA. Also necessary as ratification in Canada moves ahead, will be potentially tough negotiations between Ottawa and the provinces over sectoral compensation packages and provincial implementing legislation.

A photo of the front of a flier that circulated on Capitol Hill shows some of the members-elect of the 116th Congress, on Tuesday. (Melina Mara/The Washington Post

A photo of the front of a flier that circulated on Capitol Hill shows some of the members-elect of the 116th Congress, on Tuesday. (Melina Mara/The Washington Post)