Canada is the second biggest trading partner of the United States. Every year, the country exports goods worth more than $500 billion to the US. These goods include automobiles, lumber, and petroleum among others.
During the 2016 election, Donald Trump talked passionately about NAFTA and how the deal had devastated the United States. Most importantly, he singled out states like Michigan, which was once the automobile factory of the world. In all of his talk, the president blamed Mexico because of his low wages.
After becoming the president and after studying the trade relationship between the US and Canada, the president turned his ire to the North American country. This was further exacerbated after the G10 meeting in Quebec that happened shortly before he travelled to meet Kim Jong Un. After this meeting, the US started negotiating a NAFTA deal with Mexico but without Canada.
Two weeks ago, the president announced that US and Mexico had a deal on trade. He then extended an olive branch to Canada. This week, the chief US trade negotiator said that he was ready to move on to the new NAFTA without Canada.
The most challenging thing about this deal is that Canada has a system known as Supply Management. In it, the system places heavy tariffs on milk imports with the aim of protecting the dairy farmers in the country. This is a system that most Canadians don’t love because it gives the milk producers a lot of power. It also makes Canadian milk more expensive than that of the United States.
However, it will be unlikely for Canada to accept to end the supply management strategy. This is because Quebec is the most powerful state in Canada with more legislators than other states. It is also the biggest producer of milk, which makes a deal to end supply management almost impossible.
In reality, the US tariffs on Canadian goods may have devastating effects to Canada, which imports most of its goods to the United States.
As a result of the news, the Canadian dollar has fallen sharply against the US dollar. Yesterday, it reached a high of 1.3080 and today, it will likely move as Canada releases the final reading of the second quarter’s GDP. Traders expect that the GDP rose by 2.2%, which will be lower than the 2.4% it released a month ago.
