Democrats House Victory Complicates Passage of New Nafta, Trade Deals

Democrats\ House Victory Complicates Passage of New Nafta, Trade Deals
No gala USMCA signing ceremony with Trump unless U.S. tariffs lifted, ambassador says
When Prime Minister Justin Trudeau announced retaliatory tariffs against the U.S. to the tune of $16.6 billion this past July, it quickly became clear that the duties were intended to send Republicans a message

With Republican states and swing states primarily targeted, many wondered whether these regions would be steadfast in their support for the president come the 2018 midterm vote, or whether the effects of Trump’s trade battle with Canada would push voters in a different direction.

We'd love to have some sort of a ceremony to celebrate the USMCA, when and if the tariffs are removed.- Canadian Ambassador to the U.S. David MacNaughtonInstead, a senior source with direct knowledge of the situation said that the signing could be delegated to Foreign Affairs Minister Chrystia Freeland, or to lower-level officials.

What will the U.S. midterm election results mean for Canadian trade? It starts with the USMCA

“Canada was obviously trying to send a message to political leaders as well as to the business sector, and the message was that they were going to try to retaliate against the Republican leadership, and they wanted to try to do things in states that were marginal Republican states, that could be important electorally,” said James Brander, Canadian economist and University of British Columbia professor.

While the deal still would receive the necessary signatures to move on to the ratification process, Trudeau's unwillingness to participate would serve to send a message to the U.S. about tariffs, said one former chief of staff to a U.S. ambassador to Canada.

U.S. midterm results could delay new trade deal into 2020, watchers warn

Canada is the United States’ most significant trading partner, importing over $5 billion from Pennsylvania, Ohio, Michigan, Wisconsin and Illinois alone — all of which were hit hard by the trade action taken by Trudeau’s Liberals in July.

The Democrats managed to retake control of the House of Representatives Tuesday night while the Republicans maintained control of the Senate. In most states, polls opened at 7 a.m. local time and closed at around 8 p.m. local time.

The U.S. and Mexico had pressured Canada to accept an agreement in principle by October 1, in part to accommodate a leaders' ceremony that would include outgoing Mexican President Enrique Peña ​Nieto.

Here are the states most impacted by Canada’s retaliatory tariffs, and here’s how they voted.

Ohio has become known for almost always determining who wins the presidency, though it was also a likely target for Trudeau’s tariffs due to its trade ties to Canada.

The state is the leading exporter of a wide variety of goods to Canada that currently fall under these tariffs. Based on 2017 figures, the list includes: washing machines ($131 million); toilet paper ($91 million); organic face wash ($100 million); lawn mowers ($83 million); candles ($40 million); room deodorizers ($27.5 million); and glue ($23 million).

"What I've said to the Americans is that we'd love to have some sort of a ceremony to celebrate the USMCA, when and if the tariffs are removed," MacNaughton said.

Ohio exported about $1.3 billion in goods to Canada last year and barely swung Republican in the 2016 federal vote.

Being a key importer of steel and aluminum from Canada, New York state is set to be hit hard by the impact of Canada’s retaliatory tariffs. Not only was Canada the state’s top trading partner in 2017, but aluminum alloy and steel products are among New York’s top exports — which were a primary target of Canada’s retaliatory tariffs.

The transition of power in Mexico will take place on December 1 — which means time is running out to execute the original plan for a leaders' signing ceremony. 

In fact, New York, which went overwhelmingly blue in the 2016 election, falls just behind Ohio of the states that are likely to be most impacted by the tariffs.

Prime Minister Brian Mulroney, U.S. President George H.W. Bush and Mexican President Carlos Salinas de Gortari met for a signing celebration in San Antonio, Texas.

Notably, the typically Democratic New York is a blue outlier among those targeted, and like California, voted for Hillary Clinton in 2016.

Sarah Goldfeder, an Ottawa lobbyist with Earnscliffe Strategy Group and a former adviser to two U.S. ambassadors to Canada, predicted that a congressional vote on the trade deal wont likely come until April at the earliest. She said neither the White House nor Democrats stand to benefit from fighting over an agreement thats already been negotiated.

Canada, along with Mexico, is one of Illinois’ two largest trading partners, according to Southern Illinois University. Combined, Canada and Mexico imported 42 per cent of Illinois’ total exports in 2017.

Its largest exports include technical equipment like computers, sound equipment and other kinds of electrical machinery. Illinois is among the states targeted which voted Democrat by a wide margin in 2016.

Were not going to get to a vote any time soon, said Mr. Ujczo, who has been closely tracking the trade positions of both incumbent and incoming House members. I dont think there is going to be enough oxygen in the room in Washington to get a trade deal through.

Last year, Wisconsin exported handkerchiefs, paper towels, serviettes and tablecloths ($224 million), toilet paper ($84.5 million), mayonnaise, salad dressing and mixed condiments ($72 million) and upholstered wood-framed seats ($66 million).

The Democrats know that Mr. Trump will put a high priority on passing the USMCA, and theyll want to trade something for their support, said Maryscott Greenwood, a Washington-based lobbyist with law firm Dentons and a former diplomat at the U.S. embassy in Ottawa.

What’s potentially just as significant, however, is the impact on Wisconsin farmers, bracing for tariffs on cucumbers, gherkins and yogurt.

Pennsylvania leads all U.S. states in exports to Canada with $81 million in 2017. The states sales to Canada more than doubled from $45 million to more than $100 million in 2015, the year after Kraft Heinz pulled out of Leamington.

Received so many Congratulations from so many on our Big Victory last night, including from foreign nations (friends) that were waiting me out, and hoping, on Trade Deals. Now we can all get back to work and get things done! he tweeted.

Pennsylvania, along with Michigan and Wisconsin all went to Trump in 2016 by tight margins. These states are some that will feel the sting of Canadas tariffs the most.

Trade was not a wedge issue in the U.S. midterm elections, but its about to become a flashpoint in the new Congress as President Donald Trump squares off against the Democrat-controlled House of Representatives.

READ MORE: Midterm election results could put the USMCA in jeopardy, which isnt good for Canada: experts

Canada imported almost $200 million in coffee from Washington state in 2017. Other significant exports include plywood and other resources.

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However, energy products are the primary category traded, including natural gas and crude oil being shipped from Canada to Washington and refined products being shipped back, according to the Border Policy Research Institute.

While California went overwhelmingly blue in the 2016 election, Canada was one of the largest markets for exported goods from California in 2017, purchasing 9.7 per cent of all California exports, according to the California Chamber of Commerce.

Of these, computers and electronic products made up almost 34 per cent. California has voted Democrat in the last five presidential elections.

Capri Cafaro, executive in residence at American Universitys School of Public Affairs in Washington, said she doesnt expect the obvious divisions between the parties to hold up USMCAs ratification for too long. Cafaro, a former Democratic minority leader in the Ohio state senate, expects the deal to be very early business in 2019.

Canada imported approximately $112 million worth of panels for circuit breakers and fuses from Michigan, which barely went Republican in the 2016 presidential race.

While Ottawa expects the Democrats new majority in the House to lead to political battles on trade, the feds are comfortable theres widespread, bipartisan support for the U.S.-Canada trading relationship, said the official who spoke on condition of anonymity because they werent authorized to speak publicly on the matter.

Tennessee finds itself a victim of the newly-implemented tariff on whiskey. According to data from Business Insider, Tennessee is among the top 10 U.S. states in terms of the value of its exports to Canada in 2017, which totalled $5.7 billion.

A senior Canadian source with knowledge of the trade discussions said Wednesday that Ottawa doesnt think the midterm results have changed much in terms of timing when it comes to USMCAs ratification. They insisted ratification has been considered dependent on calendars in the U.S. and Mexico all along.

Boats and beauty products also make up a significant amount of Tennessee exports to Canada. Tennessee overwhelmingly voted Republican in the 2016 presidential vote.

March, he added, is the earliest the deal could be voted on in Congress. Before that, the practical aspects of choosing a new speaker and committee chairs settling into their positions will take up considerable time. He also noted the 2020 U.S. election season will likely begin as early as spring 2019.

While not in the top margin of states impacted by Ottawa’s retaliatory tariffs, Canada did import $62 million of whiskey from the U.S. in 2017, based on U.S. government trade data, much of which came from Kentucky.

Unifor president Jerry Dias, whose union represents auto workers, said now that the midterms are over Canadian MPs from all parties must apply more pressure to secure the removal of unjust tariffs he argues were imposed to score political points with the Republican base.

Canada imported almost $158 million worth of orange juice from Florida in 2017, which is included on Trudeau’s list of retaliatory tariffs.

The Democrats majority victory in the House of Representatives could mean the ratification of the recently struck United States-Mexico-Canada deal, known as USMCA, will have to wait well into 2019 — or even until 2020.

While experts suggest that the trade war between the U.S. and Canada won’t have enough of an impact to influence the votes of many Americans, it may just be enough for business owners and farmers.

Trump has repeatedly called NAFTA one of the worst trade deals hes ever seen and he did so again at a news conference Wednesday. He called on the Republicans and Democrats to come together in support of the deal.

“If the things your company produces were being bought by Canadians, and now Canadians aren’t buying it, you’re going to feel that,” said Robert Wolfe, an expert in trade policy and former professor at Queen’s University.

Ujczo said he hopes the tariffs are lifted by the USMCA signing at the end of November, but he noted theres an increasing expectation in the business community that the levies will remain in place well into 2019.

READ MORE: From ketchup to orange juice: Canada’s retaliatory tariffs on U.S. will hit hard and wide

Experts predict the pact will eventually gain approval, but until its ratified businesses will have to deal with considerable unknowns as they try to make longer-term decisions on export strategy and investments.

He adds that in Wisconsin, where tariffs have been placed on cucumbers, gherkins and yogurt, farmers are among the electorate for whom the tariffs could be a deal breaker.

“Trumps trade war has certainly had an impact on the United States – at the level of individual voters, the only sense that voters are getting the message is farmers,” he stated.

Furthermore, Brander adds that the Democratic Party has seen a major uptick in fundraising thanks in part to members of the business community who were hit hardest by Trump’s stance on trade.

Normally, the Republicans outraise Democrats. But this election, Democrats are raising a lot of money, and a lot of it is based on concern about Trump’s anti-trade position,” he said.