Why Donald Trump endorsed Canada's deal with China

Donald ruff just shrugged when asked nigh the sell ground Minister Mark Carney forged with China this week. The U.S. President said such a deal simply made sense.

“Well, that's OK, that's what you should be doing. I mean, it's a good thing for him to sign a trade deal. If you can get a deal with China, you should do that, right?” said Trump at the White House on Thursday.

Heading to Beijing for this week’s meeting, there was never any question that a deal could be made. The outlines of such an agreement have been publicly debated for more than a year.

The issue was whether Carney could find a deal that was politically palatable. On the one hand, he couldn’t afford to anger the auto industry or Ontario Premier Doug Ford.

But with the renewal of the Canada-U.S.-Mexico Agreement (CUSMA) looming later this year, the Canadian delegation had to walk a fine line that wouldn’t upset the notoriously mercurial U.S. President.

“Our advice has been ‘do no harm’ to the review and renewal of USMCA," said Goldy Hyder, president and CEO of the Business Council of Canada, referring to CUSMA, which is also known as the U.S.-Mexico-Canada-Agreement.

"We can’t be seen to be abandoning North America and moving on to some other pastures.”

The deal only allows 49,000 EVs into Canada to start (that’s about three per cent of all vehicles sold in this country) and lowers Beijing's tariffs on canola products but it doesn’t eliminate them.

Jim Thorne, chief market strategist at the wealth management firm Wellington Altus, says it doesn’t cross any red lines for the U.S. Administration.

Many American media outlets framed the Carney deal as a break from the U.S.; that Canada was trying to diversify from an increasingly hostile neighbour.

But Thorne says that misses the broader point. He says the Canada-China deal can and should be seen by Trump as a useful reference point rather than a provocation.

“I look at the Canada-China deal as a litmus test that the Americans are looking at,” he said.

Donald Trump's red lines have shifted over time. But his concern about China gaining a foothold in North America is one that he’s consistently warned about for decades.

The deal is "problematic for Canada," according to U.S. Trade Representative Jamieson Greer.

“There’s a reason why we don’t sell a lot of Chinese cars in the United States. It’s because we have tariffs to protect American auto workers and Americans from those vehicles,” he told CNBC Friday morning.

U.S. Transportation Secretary Sean Duffy said he thought Canada would look back at this deal and regret bringing Chinese cars into the market.

But none of the U.S. Officials appeared worried that the deal would upend Canada-U.S. Relations.

"I don't expect that to disrupt American supply into Canada," said Greer. "Those cars are going to Canada — they're not coming here."

Q&A: Carney takes questions on China trade deal, EVs and security

Karl Schamotta, chief market strategist at the financial services firm Corpay, says Carney and his team avoided the issues that are likely to spark backlash from the U.S. 

“The Trump administration has already taken the U.S. Out of the running in electric vehicles, and has not identified agricultural products as a major strategic priority,” he said.

“It is possible that this agreement was approved through back channels with the administration, meaning that — other than issuing a few obligatory hostile statements — U.S. Officials simply ignore this development.”

And the initial reaction would seem to confirm that analysis.

But not that long ago Trump initially shrugged off an anti-tariff ad the Ontario government ran during the World Series.

“If I was Canada, I'd take that same ad also,” said Trump the morning after it aired.

But within two days, Trump said the ad had “fraudulently” reused an old advertisement, which featured Ronald Reagan speaking negatively about tariffs, and broke off all trade talks with Ottawa.

Hyder says it will take time for the Americans to absorb the news out of China and more time to see how the president actually feels about the deal. But he too wonders if the Americans are hoping to glean important information for their own trade deal.

“Let's see what they do. The U.S. President is going to China. Will he come back with something similar on cars? It wouldn’t surprise me one bit,” said Hyder.

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