The U.S. has kicked off renegotiating NAFTA, but Canada was left out of the first round between Mexico and the U.S.
The U.S. is likely prioritizing a relationship with Mexico because of its healthier demographics and growing consumer base; therefore, Mexico is a more strategic long-term economic partner. Canada, however, has been getting the cold shoulder from this administration.
Leaving Canada high and dry could backfire, as the U.S. benefits greatly from Canadian manufacturing. We’ll see how the strategy changes throughout these negotiations.
Hey, everybody. Peter Zeihan here. Coming to you from Colorado. You’re going to see this on the 16th of March. Meaning that formal trade talks on the relaunching of the North American Free Trade Agreement have begun. And the first round is specifically between the Americans and the Mexicans, and the Canadians have not been invited. Quite on purpose.
We’ve got three things going on here. First of all, in the long term, the more important trading partner is Mexico. They’ve got a younger population. On a worker productivity basis, it’s actually a more productive and efficient workforce than what the Canadians have. And when the two countries come head to head in competition, the Mexicans typically win.
But most importantly, it’s a larger population, over 100 million people. And they are at the stage of their life, under age 45, 20 to 45, where they’re buying a lot of things. So it’s a consumption base that has a lot of upside growth potential. So from a purely macroeconomic point of view, it does make sense for the United States to prioritize Mexico over Canada.
That’s piece one. That makes some sense. Piece two makes less sense. Trump personally and the advisors around him and the MAGA movement in general have a real bone to pick with Canada for any number of reasons, which I’m not going to go into because a lot of them are made up. But the degree of almost hatred that this branch of the American political system feels towards our northern neighbor really is robust, and it is definitely affecting policy.
To that end, not only is Canada being denigrated at any number of opportunities, but there’s actually a significant move within this move it to break up Canada as a country. Specifically. MAGA is doing a lot to reach out to separatists in the province of Alberta. Now, for those of you who have been following me for a while, you know that she’s 13 years ago now.
Yeah, 13 years ago. I wrote a book called The Accidental Superpower. And in it, I listed five major international crises that Americans would be aware of and participate in. And one of them was called the Alberta Question. The idea is that Alberta has a fundamentally different culture, economy, infrastructure and approach to all things in the world that is very, very different from the rest of Canada.
It’s younger, it’s more highly skilled. It’s an energy, an agricultural economy, and most importantly, all of their major economic links go south to the United States rather than laterally to the rest of Canada. So the idea, that Alberta will eventually seek something else makes a lot of sense to me. But a lot of things have changed in the last 13 years.
For the most part, we’ve seen the Canadian system through immigration actually kind of get past some of their more urban demographics or at least mitigate them a little bit. So the risk that I had seen 13 years ago, basically Alberta paying for the entirety of the existence of Canada is no longer the case.
They’re still the biggest contributor in per capita terms by far. It’s the richest province by a significant margin. But Ontario is no longer aging into obsolescence at the pace that it was because of the influx of immigrants that has generated its own set of problems. But that specific problem has been mitigated somewhat.
The problem is, is that if Alberta were to achieve independence, it would very rapidly become a failed state. It would be a one trick pony with its energy economy. The currency would probably go through the roof because of it, and the place would become vastly unaffordable. The only real long term solution would then be for Alberta to join the United States.
Now, no one in MAGA is talking about that. Very few people in Alberta are talking about that. But that’s really the only long term solution here from an economic inflation, a population of skills and an infrastructure point of view. There’s just that little cultural issue about whether you want to actually join the United States. So we have MAGA, basically stirring the pot to see the kind of problems they can generate in Alberta, specifically in Canada in general.
But no one’s really thought about what’s the next step, should they actually win? That’s a problem anyway. Third piece impact on the United States for not having Canada in NAFTA. One of the beautiful things, from my point of view about NAFTA is we get access to the workers in the industrial plant of our neighbors, but we don’t have to pay for their education or their social welfare system, or their health care or the law enforcement.
We just get all the benefits. So when I look at Canada, I basically see a country of 35, 38 million people, whatever the number is now, but it’s actually more tightly. Each of the provinces is more tightly integrated in the United States than ever with one another. And we get the benefit of that in our industrial base to serve our domestic needs, to serve our export markets, whatever it happens to be.
And we don’t have to pay for any of it. So we know that the Trump administration is deeply hostile to, Canada’s presence in specifically aerospace and automotive, which are two big, big ticket items when it comes to manufacturing and trade. And it’s been very, very blunt and saying that Canada, you’re going to lose all of that. It’s all going to come back to the United States.
But that would mean then that we need to train up a replacement workforce and build replacement infrastructure for stuff that already exists north of the border. And considering we’re just a few years from the Chinese breakdown and the breakdown in global trade in general, I would honestly say we don’t have the time to mess around with something like that.
And even more importantly, we need to take the energy that we would have to build out that industrial plant to build up other industrial plant that we need even more. We’re already an environment of a labor market that is going to be shrinking for the next decade for demographic reasons, two decades, actually, and we just don’t have the labor or the capital, to be perfectly honest.
That the green space in the industrial parks right now and do all of this at the same time. And so if the Canadians want to continue paying for their health care and their infrastructure and their training in order to help our industrial plant, I say let them, well, go that way. You know, we’ll see.
NAFTA is the most complicated trade deal on the planet because it deals with all the technical details of 10,000 different product steps. The person who is handling the negotiations is the US TR who is Jamison Greer? He’s seen this before. This is not the first time that Donald Trump has pushed trade negotiations into a different direction.
If you go back to Trump won the US, TR was a guy by the name of Robert Lighthizer famous for playing hardball. Very good negotiator. Jamison Greer is his protege. So Greer has seen the inside of this process already, even if his name wasn’t on it. And last time around, Lighthizer talked with the Mexicans quite a bit before forcing a deal on the Canadians.
So whatever deal comes out of this is one that the Canadians, while very, very little leverage and independently of the fact that the current administration really doesn’t like Canada, that’s just the nature of the beast. It’s the nature of the people. It’s the nature of the future of Mexico. And while there are certainly things that we absolutely can do more easily with Canada as part of the process, that doesn’t necessarily mean that’s the way it’s going to go, because if there’s one thing you know about Americans in general and this administration specifically, we don’t always do the obvious thing.
