Trilateral Talks Take Place Against Backdrop of Supply Chain, Protectionism Concerns

Prime Minister Justin Trudeau and U.S. President Joe Biden listen to opening remarks during a plenary session at the G7 Summit in Carbis Bay, United Kingdom, on June 11, 2021. The Canadian Press/Adrian Wyld

Strengthening North American supply chains and friction over renewed attempts at U.S. protectionism are key issues as the leaders of Canada, the United States, and Mexico hold their first trilateral meeting since 2016.

The North American Leaders’ Summit comes amid new U.S. protectionism measures, one of several irritants for Canada. President Joe Biden’s infrastructure bill, signed into law Nov. 15, has many “Buy American” provisions. The Build Back Better Act introduced in Congress would give a tax credit of up to US$12,500 to any buyer of a new electric vehicle made in the United States by members of the United Auto Workers union, a requirement that Ottawa says would negatively impact the auto industry and related jobs.

Prior to the Nov. 18 summit at the White House, Foreign Minister Melanie Joly said she pressured U.S. Secretary of State Antony Blinken to stand against the tax credit and also to defend the Line 5 pipeline. Canadian ambassador to the United States Kirsten Hillman echoed Ottawa’s position that the tax credit would violate the North American free trade pact, the Canada-United States-Mexico Agreement (CUSMA).

Dave Perry, vice president and senior analyst at the Canadian Global Affairs Institute, said American protectionism is no surprise given Biden’s election campaign.

“The American economy, American workers, made in America—it took Canadians a while to register that he very much ran on that message,” Perry told The Epoch Times.

Perry said the implications of the proposed U.S. tax credits are significant and notes that it is timely for Trudeau to get “substantive” time with Biden face to face.

“It could potentially be the first step in unravelling what has been an integrated North American auto sector since the Auto Pact in the 1960s,” he said. “That flies in the face of the premise of our auto sector in North America, which has been an integrated industry most of the decade.”

Geoffrey Hale, political science professor at the University of Lethbridge, says there are a lot of separate bilateral issues at play that might present a challenge to forming a united continental vision.

“The three leaders have all had their hands full with domestic politics. There may be overlapping agendas here, but I’m not sure about overlapping priorities,” Hale said in an interview.

“The Americans generally have a wish list that goes beyond window-dressing in such meetings, although they’re not talking about it in public.”

Free Trade Lacking in Transportation

Barry Prentice, professor of supply chain management at the University of Manitoba’s Asper School of Business, says he doesn’t expect much from the summit “because of the nature of the three countries and their vested interests,” but one outcome that “would have a remarkable impact” would be changing the restrictions on cabotage in the United States.

Cabotage is the transport of goods and passengers between two places in the same country by a foreign transport operator. In 1920, the United States passed the Merchant Marine Act (whose Section 27 is known as the Jones Act), to bar foreign-owned ships from loading cargo at one U.S. port and then unloading it at another. To be able to do so, a ship must sail under an American flag and be U.S.-built, U.S.-owned, and U.S.-manned.

A recent analysis by Peter C. Earle at the American Institute for Economic Research said the legislation remains to the benefit of American shipbuilders and unionized workers, two of the major interest groups lobbying against repealing it. Both see “low-cost foreign competitors” as their biggest challenges. But the protectionist rules lead to higher shipping-related costs, which in turn drive up the prices of final goods.

“More employment opportunities, commercial diversity, and a wider range of goods and services from abroad are necessarily hampered by the artificial restraint upon trade that it manifests,” writes Earle.

Prentice says Canada does not differ from its neighbour in that both countries exercise similar protectionism on the operations of ships, airplanes, and trucking companies. This prevents a “milk run opportunity” where a Canadian carrier could hypothetically start in Canada, have pickups and drop-offs in various U.S. locations, and continue to Mexico.

“The original NAFTA agreement was to allow trucking to be free between Mexico and U.S. and Canada across the borders, but that doesn’t happen either. You never see a Mexican carrier here. They’re not allowed to come into the U.S. Rank protectionism is all it is,” he says.

According to the International Monetary Fund, the 2021 gross domestic product for the United States is forecast to be US$22.675 trillion, dwarfing Canada’s $1.88 trillion and Mexico’s $1.19 trillion. In 2020, the U.S. Bureau of Transportation reported $255.1 billion of U.S. exports to Canada and $270.38 billion of imports from Canada, compared to $212.67 billion of U.S. exports to Mexico and $325.39 billion of imports. Most U.S. exports and imports to these countries are by truck.

Prentice believes that real free trade in transportation would raise these dollar values, especially north-south rail corridors. The Canadian Pacific Railway purchase of Kansas City Southern in September would facilitate one such connection, should regulators approve the purchase. Another example would be the rail corridor connecting Mazatlan, Mexico, with Winnipeg proposed Nov. 12 by Mexico’s Caxxor Group.

“A single line has advantages over interlining in terms of how you control your equipment and your schedules and reliability for your customers. That’s just another one of those opportunities [in] what we call nearshoring,” Prentice said.