Can Ottawa Adjust to the New Washington Consensus On Trade?

An early version of this analysis was published in The Hub.

One week after Canadian parliamentarians returned to work, the shadows of two elections with major implications for loom over Ottawa. This season, legislators have to worry not only about their own electoral prospects following the collapse of the Liberals’ supply and confidence agreement with the NDP, but also the outcome of the United States’ general elections in early November.

Joe Biden’s decision to withdraw from the election means that a new US administration will be in power come January 2025. Despite the many policy differences between former president Donald Trump and vice president Kamala Harris, both candidates’ trade platforms are grounded in the same America First philosophy that first emerged in 2016 and was solidified with bipartisan support in 2020. 

Regardless of who wins the White House in November, the next administration will continue the efforts of its predecessors to reduce economic dependency on adversarial states like China and Russia, strengthen supply chains for critical goods and materials with allies (including those in North America), and prioritize the enforcement of existing trade commitments over negotiating new agreements. Policies in support of these goals, such as an increase in domestic oil production and the application of national security tariffs on Chinese imports, originated in the first Trump administration and were maintained through the Biden administration. Barring a major development, deviations from the current course of trade policy are unlikely to originate from the executive branch.

US trade strategy as devised by the executive branch has also dovetailed with big spending industrial policies shaped by recent Congresses, such as the Inflation Reduction Act and the CHIPS Act. Though the industries receiving government support may shift depending on the election outcome, Congress’ appetite for investing in domestic industrial power is unlikely to shrink. 

These policies constitute a new Washington consensus on trade: one that combines economic nationalism with political pragmatism to overcome partisan polarization and get things done. At times, this approach benefits allies at the expense of geopolitical adversaries; just as often, it can undercut US trade partners in favor of strengthening domestic industries.

Canada has so far responded with piecemeal strategies, hoping for a return to pre-2016 norms. Since that is unlikely, Members of the 44th Parliament should prepare Canadians to adjust by engaging in an honest debate about the changes in US thinking in six areas:

1. Buy American and Canadian Content. Domestic content requirements have been used by both countries, notably by the United States for defense procurement and by Canada for the promotion of Canadian culture. The difference is that the United States typically applies set-asides as a condition of government financial support, whereas Canada is prone to establish content quotas as a precondition for government licensing or permits. These patterns are engrained on both sides of the border and unlikely to change.
2. Industrial Policy. The critique of industrial policy, which argues it leads to inefficient resource allocation because it favors friends of the government, applies to both countries. However, the Biden administration's novel industrial policy offers incentives to any private firm that qualifies by responding to a public sector priority, even foreign firms. For instance, the United States has financed Canadian-owned firms work in the US, and even invested directly in critical minerals projects in Canada. 
3. Dispute Resolution. In terms of disputes, former US Ambassador to Canada Bruce Heyman observed that Americans prefer litigation, while Canadians prefer negotiation. This difference often leads to a stalemate when the US refuses to bargain and Canada drags its feet on a previous commitment. In implementing the United States-Mexico-Canada Agreement (USMCA), the United States has pushed Canada to fully open its dairy market as agreed, while disregarding the USMCA panel rejecting the US interpretation of the formula for calculating the automotive rules of origin, daring Canada to sue. With another USMCA dispute, this time over Canada’s digital services tax, expected to formally kick off in the coming months, MPs can expect this contrast to re-emerge as an irritant in the bilateral trade relationship. 
4. Further Trade Liberalization. Congress last granted trade negotiating authority to an administration in 2015, and it expired in 2021. Without new negotiating authority, the United States could not renegotiate the USMCA, only withdraw from it. That is unlikely: USMCA approval garnered bipartisan majorities in Congress and praise from Trump and Biden even though as senator, Kamala Harris voted against it. Nonetheless, the need for a new authority underscores the power that Congress holds over US trade policy and, by extension, why parliamentarians should also keep an eye on congressional election results. 
5. Security Still Trumps Trade. Former US Ambassador to Canada Paul Cellucci’s blunt expression of US priorities still applies. Both Democrats and Republicans support efforts to develop critical minerals, increase defense spending, and impose sanctions on adversaries like China and Russia. Canada will benefit most from its integration into US defense supply chains if it remains closely aligned with Washington in Great Power rivalries.
6. Results Matter. Canada’s historic partnership with the United States and highly integrated economy makes it a partner of first choice for industries that Washington is attempting to nearshore such as critical minerals and semiconductors. However, goodwill and geography will only get Canada so far. In exchange for the incentives offered to foreign businesses under the new Washington consensus, the United States trusts its allies to be reliable, timely nodes in a secure supply chain. When that trust is breached or shown to be misplaced, US leaders will not hesitate to revoke those opportunities and bring their business to other allies.  

Ahead of a Canadian federal election in 2025, MPs should be clear-eyed and creative in debating Canada’s economic future. The 44th Parliament’s response to US trade policy will be particularly salient as Canada continues to angle itself ahead of the mandates USMCA review in 2026. Canada stands to benefit from the new Washington consensus on trade, but only if Canadian leaders ditch their holding pattern and develop a comprehensive approach. An Ottawa consensus about relations with the United States eschewing partisanship and ideology would serve Canadian interests well.