Trump USMCA Threat Could Push Canada Closer to China

A reported threat by US President Donald Trump to withdraw from the North American trade pact could push Canada closer to China, analysts say, even as his new global 15 per cent tariff has little immediate impact due to existing trade agreements.

Washington, Ottawa and Mexico City are set to renegotiate terms of the US-Mexico-Canada Agreement (USMCA) before a possible extension on July 1. Earlier this month, Bloomberg reported that Trump was quietly considering exiting the trade deal – negotiated during his first term to foster deeper economic integration – citing unidentified sources.

Weighing in on the potential impact, Salvatore Pinizzotto, co-founder and managing director at Xida Communications in Italy, said: “Canada would almost certainly accelerate selective diversification, and China would be part of thatnot as a substitute for the US, but as a hedge.”

And Stephen Olson, a former US trade negotiator and a visiting fellow at the ISEAS – Yusof Ishak Institute, said that a US departure from the trade pact would “hit Canada like an earthquake”.

“While it’s a no-brainer for Canada to attempt to draw closer to China, sticking points remain in the Canada-China relationship, and it won’t immediately be hugs and kisses,” Olson noted.

“Recent signs of warming relations are positive but should not be exaggerated – there’s still a long way to go.” Canada has been rebuilding diplomatic ties with China after years of strained relations.

Last month, they embarked on a new strategic partnership as Prime Minister Mark Carney visited Beijing. He announced a series of deals and suggested that Beijing was a “more predictable” partner than Washington.Following Carney’s trip, China eased entry rules and allowed Canadian passport holders to travel to the country visa-free from February 17.

China also resumed Canadian canola purchases, which had plunged last year amid tensions between the two nations. Kelvin Heppner, a farmer from the Canadian province of Manitoba, said there was an increased willingness in the nation for pragmatic approaches to trade with other countries, including China, as a result of Trump’s threats.

“There’s certainly anger [in Canada] towards the Trump administration,” he added. “The Canadian government will continue to look for opportunities to diversify trade, including with China.”

However, Heppner also noted that reports about the US pulling out of the USMCA were “overstated”, because he saw the move as unlikely to get congressional approval. Furthermore, he said, the three-quarters share of Canadian exports that go to the US could not be replaced or offset by exports elsewhere.

Under the USMCA, Canada currently maintains largely tariff-free access for most exports to the US, subject to sector-specific provisions or tariffs on steel, aluminium, automobiles and timber.

The US was Canada’s largest trade partner last year, and China was the third largest, according to India-based market research firm Seair Exim Solutions.“On trade and growth, there is growing pragmatism,” Pinizzotto said. “Canadians generally support doing business with China, where risks are manageable and rules are clear, especially in sectors like agriculture, education and selected resources.”

Over the longer term, according to Olson, an American withdrawal from the trade pact would bring inefficiencies, raise prices and reduce corporate competitiveness for companies on both sides of the border.

And in light of the US midterm elections later this year, he expects that “Trump will be very careful about taking actions – such as tariffs – that will increase costs forconsumers”.

“[Trump] understands that the election will be fought largely on affordability, and that if the Democrats take over one or both houses of Congress, the remainder of his term will be considerably more difficult,” he said.