– This is the script of CNBC's news report for China's CCTV on September 03, 2018, Monday.
Trade talks between the United States and Canada will kick off again Wednesday, after the two sides ended Friday's tense negotiations without a deal. But what is concerned by market is the difficulty for this negotiation is beyond expectation, both sides have a tough stance. Then if that means there's a growing chance that Canada will be out? Let's analyze the possible trend for this event. First, deal, keeping all parties in the NAFTA is still possible, several major trade disputes between US and Canada have to be solved first, and both of them make concession.
US President Trump said that US held the negotiation and didn't want to make any concession, while Canada also said it only accept a NAFTA agreement that is benefit Canada.
Two of the most contentious and longstanding issues are: first, the antidumping mechanism ruled in Chapter 19. The US has tried to remove chapter 19 dispute resolution mechanisms that prevent the United States from enforcing penalties in anti-dumping and countervailing cases in the negotiation. But in the earlier negotiation, Mexico agreed while Canada against strongly. So that is the most challenging part. Additionally, another controversial is dairy industry that is under protection in Canada. From the market point of view, Canada dairy industry has been a thorn in Trump's side.
The US is the 2nd largest dairy producer, as well as the 3rd largest dairy products exporter, accounting for 14% in global exports market. In 2017, US dairy exports reached US$4.18 billion, but can't enter Canada market. In Canada, dairy industry under protection is a political issue.
Currently, Canada slaps high tariffs on US dairy products, the average dairy tariffs is 55% globally, while that in Canada is as high as 218.5%, even a 270% is seen on US imported dairy.
Dairy is valued at nearly US$20 billion in Canada and employs more than 220,000 people, so this industry has great political influence in Canada. Thus, if both sides can't make concession, then that would be an impenetrable barrier. What will happen if they can't make deal? The most possible developing trend is
The white house may kick out Canada; let the congress vote for the agreement that only includes US and Mexico, after 60 days, Trump will sign it into formal law. Meanwhile, trump will take advantage of President Authority to apply fast track in congress, and that privilege only requires 51 votes from the senate to pass.
Yet many lawmakers think this action is illegal, because NAFTA set a 3 parties framework from the start, if the bilateral deal is submitted to congress, then this draft may not does not meet the fast-track authority, meaning Trump has to claw back support from Democrats again. As things stand, however, both parties in congress are highly critical to trump's aggressive negotiating, with a slim chance of 60 votes.
So there are voices saying the NAFTA is now get stuck in dilemma so-called "Everybody's business is nobody's business". In fact, Canada is a more important partner to the US compared to Mexico according to the total trade amount. And if US, Canada and Mexico can't make a deal, then US GDP in the coming 5 years will lose 0.2%, Canada GDP will drop 1%, Bank of Montreal said in a report. What is worse is they will be less competitive and the deficit with Asia will grow, especially the US economy will pay a completely unnecessary price, causing all sides have no business. We will keep an eye on this issue.