President Donald Trump is the first major American politician to challenge the North American free-trade agreement.Pete Marovich/Bloomberg
Chilling thought for a Canadian winter evening: Mexico's legitimate trade with the United States is almost identical to Canada's.
An emerging Third World neighbour that has not fought side-by-side with the United States in the wars of the 20th Century – or the 21st, and is the main supplier of illegal drugs to American users, and a major factor in big-city American drug wars has been outperforming Canada lately in the share of NAFTA revenues.
Donald Trump is the first major American politician to challenge the North American free-trade agreement, and insist that America get a bigger share—or else. Most Canadians would probably think the U.S. already has the lion's share, so what's he shouting about? Canadians who think he is a mere idiot and buffoon who will fade into failure and obscurity have been watching too much American television, or reading too many American newspapers, or reading too many Canadian columnists who rely on those same sources. Those media predicted he would not win the Republican nomination, and then predicted he would be overwhelmed in the general election. Then, many of them predicted, he would not carry out his absurdist campaign promises—such as tearing up NAFTA.
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Mr. Trump is clearly a character in an ongoing reality play who seems to protest too much. But he has a winning political coalition behind his claim that the U.S. has been losing heavily in its foreign trade because foreigners have been tougher and smarter negotiators.
Canadian political leaders profess to be as shocked...shocked! as the dumbfounded Captain Renault that Mr. Trump has quashed the Trans-Pacific Partnership. Stephen Harper had managed to keep a surprisingly large exemption in the TPP for the astonishingly protected dairy industries in Quebec and Ontario, and had provided for taxpayer-financed purchase of farmers' quotas. Mr. Trump won the American farm vote big, and he will surely focus on the awe-inspiring price differentials between Canadian and U.S. milk and cheese products when renegotiating NAFTA.
Mr. Trudeau will probably follow Mr. Harper's lead in taxpayer compensation for farmers. He will doubtless try to protect the crucial protection for Canadian banks from American takeovers, which survived only because of a last-minute phone call from Brian Mulroney to his great friend Ronald Reagan ... at a time Canadian banks had been merrily buying up U.S. banks.
Good luck on that NAFTA deal, given Wall Street's weight in the Trump cabinet. (Canada's negotiator might try to save the day by pointing out that TD's purchase of Ameritrade, a major broker, supplied the Ricketts family with the funds to take over and refashion the Cubs into once in a century winners. That might help Canada in Chicago, but will not help across the rest of the Midwest where Republican legislators are now as common as buffalo before the white man came.)
Mr. Trump is likely to insist that Canada amend the Bank Act to open the doors to foreign ownership. On the evidence, that flag-based protectionism and a stricter regulatory regime has served Canada well. Thousands of American banks perished during the Depression, and many more fell from 2007 through 2009.
Canada's fabulously few banks have not only survived, but most of them have acquired U.S. banks and financial institutions at propitious prices.
If remaining in NAFTA means permitting American takeovers, expect share prices of Canada's big banks to climb to levels that will look ridiculous when Wall Street next crashes. Perhaps that would also mean more "near-banks", like Canadian Tire.
That would not presage waves of takeovers of Canadian companies, because no other major sector of the economy is protected by a Bank Act Ban-Aid [sic] guaranteeing domestic control.
There may yet be a way to avert American takeovers of our big, successful, and famously-protected banks: changing the terms of the debate.
Since the Canada-U.S. Trade Agreement became a three-nation club known as NAFTA, the loonie's value has swung in response to oil prices or the disemboweling of bad U.S. banks, but now trades almost eerily where it traded when NAFTA became a threesome.
Now look at the Mexican Hat Dance performance of the peso, which traded 8 to the U.S. dollar when it was invited to the North American Ball, but was trading at 15.7 when Mr. Trump first spoke in the Republican primary and is now at 20.8. That, in Trumpese is a Huge Devaluation. Mexicans will try to justify this competitive devaluation by blaming oil prices, but the peso traded at 14 when crude was $100 (U.S.) a barrel, and the loonie was near par on the greenback. (China's yuan has actually increased 17 per cent in value in since NAFTA's birth, but The Tweeter-Chief somehow refuses to admit that.)
While U.S., European and Asian auto makers were rushing to build plants and create jobs in Mexico, and plants in the U.S. Midwest and Ontario were shutting down, Mexico's attractiveness as an industrial location kept improving through an increasingly pathetic peso price.
Recommendation: When Canada assembles its NAFTA team, ensure it has almost no enthusiasts about global warming being as man-made as autos, but some tough currency-oriented negotiators.
Canada should ensure that the NAFTA debate focuses on currencies in a free trade zone.
Trump's gaseous emissions on what he alleges as currency manipulation have noxious toxicity.
Germany dominates in the eurozone in quasi-imperial fashion, within a level currency playing field, because no other partner can compete with German manufacturers' cost structures.
That Mexico keeps gaining market share from two advanced industrial economies with long-standing constitutions and reliable legal systems, shows the competitive power of currency devaluation within a free trade zone.
If Canada does not lobby friendly Republican Congressmen to make that point, the NAFTA revisions could be historically humiliating for Canada. The Ambassador Bridge saga in which then-president Barack Obama managed to stick Canada with financing the entire cost – even including the U.S. customs shack – shows you need angles to get ahead of the Star Spangled Banner's minions.
Mr. Trump has fulfilled his promise to give Keystone the green light, and he has expressed good feelings toward Canada. But he needs to look like a winner on reforming NAFTA.
Mexico – not Canada – should be the loser.
Don Coxe is chairman of Coxe Advisors LLC. Based in Chicago, he publishes the Coxe Strategy Journal for investors.