• May 26, 2017
  • Insights

Dead on arrival? Draft US budget

Big pile of US money lying down in random order closeup

While President Trump continued his first international tour, the White House released its budget proposal this week via a briefing by Mick Mulvaney, the Director of the Office of Management and Budget. So far the budget has received more criticism than praise, with members of the Republican majority in the House of Representatives voicing concern on a number of controversial items. The combination of draconian cuts to well…just about everything…including the social safety net, insufficient increases in the budgets for defense and law enforcement agencies, and lack of sufficient revenue generation, has left it short on champions. While no White House budget proposal is ever warmly received, some in Congress have described it as “dead on arrival.”

The bleak assessment of the chance of the White House budget gaining any traction reflects a negative view of the likelihood of any legislative successes in the remainder of this year. The investigations notwithstanding, this White House and the Speaker of the House are struggling to find allies for their legislative agenda. The healthcare debacle has cost the Republicans a lot of political capital and they have nothing left in the bank to propel that legislation out of the Senate, let alone push forward tax reform, infrastructure, or immigration reform.

NAFTA Canada’s Early Positioning

The process to renegotiate NAFTA in the United States will be very public, as required by the U.S Trade Promotion Authority (TPA). The USTR released its request for comments on the renegotiation of NAFTA in Tuesday’s Federal Register. This signals that the consultations with stakeholders have begun in earnest. In Canada, since we have no requirement that parallels that of the TPA, the process will invariably be different, but there will be hints at Canadian positioning along the way.

One broad set of hints came late last week with the release of Canada’s formal response to the President’s March 31st executive order requiring that the U.S. Department of Commerce and the USTR review the causes of bilateral trade deficits, in order to “inform future policy decisions.” Submitted by Canada’s Embassy in Washington on May 10th, the Canadian response provides some useful insights into the overall approach Canada will take in the renegotiation of NAFTA:

There is no direct link between trade agreements and the Canada-U.S. trade balance

  • “There is no evidence that the policies and practices listed in the notice as possible causes of the U.S. trade deficit have a significant bearing on the U.S.-Canada trade balance.
  • Moreover, the Government of Canada questions two core assumptions of this assessment: that trade barriers are the fundamental drivers of trade imbalances and that trade restrictions are an effective way to address such deficits.”

Canada-U.S. trade is mutually beneficial

  • “Canada is the leading foreign destination for U.S. exports of goods and services…”
  • “Canada is the leading merchandise export destination for 32 U.S. states…”

Canada-U.S. trade is integrated

  • “Our trade is characterized by a high level of integrated production, with companies on both sides of the border using inputs from the other.”
  • Approximately 17.5 per cent of value of Canadian exports of goods and services to the U.S. contain content that was imported from the U.S.,” 26.2 per cent in the case of manufacturing.

Canada is a secure and reliable energy supplier to the United States

  • “(F)or crude oil, Canada provides about 39 per cent of U.S. import demand over the 2014-2016 period (by volume).
  • “If energy is excluded from the trade balance, the United States has enjoyed merchandise trade surpluses with Canada in non-energy products for the past 10 years.”

Freeland & the ‘Maple Charm Offensive’

The ‘Maple Charm Offensive’ continues. While speaking in Mexico City this week, Foreign Affairs Minister Chrystia Freeland revealed some interesting details on the Canadian charm offensive to the Trump Administration and Congress in advance of the NAFTA renegotiation – albeit following last week’s ‘elbows up’ comments on linkage/retaliation. Canada’s data trove has enabled it to drill down into individual congressional districts to show the local benefits of trade with Canada. She said she was able to tell Paul Ryan, Speaker of the House of Representatives, that his Wisconsin district does a billion dollars worth of trade annually with Canada, a figure that amazed him. Freeland also said that since President Trump assumed office in January, there have been 235 meetings between Canadian and U.S. officials, and 110 political visits to the U.S. with Trump and his cabinet officials. Canadian officials have also met with 115 members of Congress and 35 state governors or lieutenant-governors.

Gearing Up: Automakers & Organized Labour

Automakers and auto unions are warming up on NAFTA and beginning to voice their wish-lists in advance of the renegotiation. In a meeting last week with U.S. Commerce Secretary Wilbur Ross, Unifor National President Jerry Dias identified rising levels of vehicle imports from non-NAFTA regions, (nearly one-quarter of the North American market) as a “more pressing concern to jobs than trade imbalances within the region,” and said that a more cooperative continental approach could assist in re-balancing trade flows and work standards.

American Automotive Policy Council President Matt Blunt said U.S. automakers see in the NAFTA renegotiation an opportunity to “encourage the global acceptance of vehicles built to U.S. auto safety standards,” and to beat back European efforts to establish its standards as the global norm. Canadian automakers agreed in early-May testimony before Canada’s House of Commons Trade Committee. David Paterson, VP corporate and environmental affairs at General Motors of Canada told the committee “we should build upon the progress made through the (regulatory cooperation council) and others to align our vehicle technical standards within NAFTA, while insisting that countries outside NAFTA recognize and accept our technical standards.” On both sides of the border, the industry agrees that NAFTA’s current standard of 62.5 per cent auto rule of origin should not be changed, although Secretary Ross has advocated moving to a much higher standard.

Trump & NATO: All Stick no Carrot

President Trump arrived in Brussels in just days after the bombing in Manchester that killed 22 and injured many more, mostly young women and girls. The rift between the U.S. and U.K. intelligence services has grown in the days since and cast a pall on the normally close relationship between the two founding NATO partners. A shove aside of the Prime Minister of Montenegro demonstrated the pursuit of the spotlight that President Trump has become known for. Stern faces greeted President Trump when he continued to push the 23 NATO allies that do not yet spend 2% of their GDP on defense (Canada being one of those) to spend what is commonly seen as their fair share. While he clearly has an agenda he would like NATO to pursue, his speech made clear that the Trump doctrine has at its core, relationships with key allies from the Middle East (Saudi Arabia). He notably refused to voice support for article 5, which has only ever been invoked once, on September 11, 2001.

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