On June 2nd, Dominic Leblanc, the federal Minister responsible for Canada-U.S. Trade, Intergovernmental Affairs, Internal Trade and One Canadian Economy, was in Washington with the Canada-U.S.-Mexico Agreement (CUSMA) chief negotiator, Janice Charette, to meet with U.S. Trade Representative (USTR), Jamieson Greer, to discuss the CUSMA’s (or USMCA for our American friends) review, which the agreement calls for on July 1st.
In his post-meeting press briefing, Minister Leblanc was very upbeat about the meeting, as he usually is after such meetings. His optimism contrasted with President Trump posting “51st State” on Truth Social the night before in reference to an article mentioning that Canada is in a “technical” recession because its economy has experienced two successive quarters of negative growth.
What are we to make of this meeting? Will Canada and the U.S. come to an agreement on a revised CUSMA by July 1st? What happens if they don’t?
The best way to answer these questions is to understand the CUSMA review/renegotiation between Canada and the U.S. as a game of chicken (also known as brinkmanship). A similar logic applies to Mexico-U.S. negotiations, but with a key difference).
To start, let’s look at the three scenarios for CUSMA after July 1st:
- There is an agreement on a revised CUSMA and it is renewed for 16 years.
- There is no agreement on a revised CUSMA and the current agreement continues to apply “as is” with another review date on July 1st, 2027 and every year after that until July 1st, 2036, when the CUSMA expires if the parties did not agree to renew it.
- One of the parties (i.e., the U.S.) leaves the CUSMA after a six-month notice to that effect.
Just before Minister Leblanc’s arrival in Washington yesterday, he sent a letter to his American and Mexican counterparts to indicate that Canada prefers scenario #1. On the other hand, the U.S. side has complained that Canada hasn’t really started negotiating with them, while they have begun negotiating with the Mexicans. For this reason, Greer doesn’t think a deal with Canada can be reached by July 1st (scenario #2).
The problem is that Canada and the U.S. have very different visions of what scenario #1 means. Canada wants a traditional “win-win” type of renegotiation where the focus is on narrow technical issues. In such an approach, both sides make concessions but, in the end, they both come out feeling that a revised CUSMA is better for them than the previous version.
The U.S., however, wants a “win-lose” deal for a revisedCUSMA, where the U.S. makes clear gains at Canada’s expense. This is the power-based, transactional approach favoured by Donald Trump: use whatever leverage possible to extract the maximum out of a relationship.
For Trump, this leverage takes the form of “weaponizing” access to U.S. markets and defence support. Commerce Secretary, Howard Lutnick, described the tariffs as equivalent to buying a membership card to be able to shop at Costco.
That’s how the Trump administration used its Liberation Day tariffs to force other countries to negotiate one-sided (i.e., win-lose) trade deals whereby U.S. partners had to make important concessions if they wanted lower tariffs on their exports to the U.S.
It has adopted the same approach for the CUSMA’s review process. The Trump administration wants the U.S.’s North American partners to make significant concessions. In exchange, they can get a reduction in tariff levels.
In other words, it feels as if the U.S. is offering Canada and Mexico a menu of tariff levels to which are associated different quantities of concessions. The bigger the concessions from the U.S.’s perspective, the lower the tariff level.
After all, USTR Greer has made it very clear that a revised CUSMA will contain tariffs. As such, the era of free trade in North America is over.
If free trade is dead in North America, then one may ask, what’s the point of reviewing the CUSMA? For all intents and purposes, the “deal” that the U.S. is offering means that the CUSMA is also dead. For Canada, such a deal means that there is no real difference between scenario #1 and scenario #3. The best outcome at this point is scenario #2.
So, why did Leblanc then make a plea for scenario #1?
The logical answer is that Canada is trying to put the CUSMA ball in the U.S. camp by saying to the Trump administration: negotiate in good faith (i.e., win-win) based on our current technical offerings (scenario #1) or leave the deal as is (scenario #2); if not, you can then announce that you’re pulling the U.S. out of the CUSMA (scenario #3).
This is surely the message that Leblanc and Charette took to Greer yesterday. It is up to the Trump administration to decide which scenario will prevail. Since Canada will not negotiate a win-lose scenario #1, then it leaves scenario #2 or scenario #3. From the U.S.’s perspective, threatening scenario #3 is the only way to force the Canadian side to negotiate a win-lose scenario #1.
But what if Canada tells the U.S. that it prefers scenario #3 to a win-lose scenario #1? That’s the game of chicken that Canada is forcing onto the U.S. Does the U.S. think Canada is bluffing? Does the Carney government think that the Trump administration is reluctant to withdraw from the CUSMA (or credibly threaten to do so) because of the political and economic costs it brings forth, especially months away from the mid-term elections (even if it is doing all it can to ensure that the Republicans retain control of Congress)?
So, like a truck and car heading straight towards each other, Canada and the U.S. are trying to see who will swerve first to avoid a head-on collision with the ensuing damage. The Trump administration sees Canada as weak and dependent on the U.S. Therefore, it assumes that Canada will swerve first and settle for a win-lose scenario #1 negotiation. Canada, for its part, is calculating that the Trump administration doesn’t want to pull the U.S. from the CUSMA at this time. That’s why it is proposing a win-win scenario #1 negotiation. That way, the Trump administration saves face by being able to declare that a deal has been obtained rather than settling for no deal (scenario #2).
In other words, the Carney government is trying to see if Trump will TACO (Trump Always Chickens Out) or not.
