America’s NAFTA nemesis: Canada, not Mexico

NAFTA Explained

The United States and Canada have one of the largest trade relationships in the world.

President Donald Trump met for the first time with Canadian Prime Minister Justin Trudeau on Monday.

“We have a very good trade relationship with Canada,” Trump said at a news conference.

However, the trade relationship between the United States and Canada in recent years has not been as smooth as everyone imagined. There are trade wars, acts of retaliation, allegations of dumping, and job losses.

“Our trade relationship is clearly strong … but that relationship has been rocky, even though we’ve reached an agreement,” said Stuart Trudeau, editor of the Canadian Center for Alternative Policies, a research group based in the Canadian capital, Ottawa.

trump often lashes out Mexico and NAFTA, a trade agreement between the United States, Mexico and Canada. But Canada is rarely mentioned.

However, there are more NAFTA dispute claims against Canada — almost all brought by U.S. companies — than against Mexico. Even today, Canada imposes steep tariffs on the U.S., and the two countries only recently resolved a bitter dispute over meat.

Most leaders and experts emphasized that the trade relationship between the two countries is strong and mostly positive. But Canada and the U.S. have fought a lot along the way.

Now Trump wants to renegotiate NAFTA, which will be at the top of his agenda when he meets Trudeau.

1. Canada has more trouble with NAFTA than Mexico

Listening to Trump, you might think Mexico was a bad actor for NAFTA. But since NAFTA was created in 1994, there have been 39 complaints filed against Canada, nearly all of them by American companies. Known in the industry as investor-state dispute resolution, it allows companies to resolve cases under a special panel of NAFTA judges rather than in district courts in Mexico, Canada or the United States

There were only 23 complaints against Mexico. (By comparison, Mexican and Canadian companies filed a combined 21 complaints against the U.S.)

Canada is increasingly the target of American complaints. Canada has been hit by 70 percent of NAFTA dispute claims since 2005, according to Canadian research firm CCPA.

2. American-Canada Timber War

NAFTA isn’t the only sore spot. In 2002, the United States imposed tariffs of approximately 30 percent on Canadian lumber, claiming that Canada was “dumping” its lumber into the US market. Canada rejected that claim, arguing that the tariffs cost its lumber companies 30,000 jobs.

“This is a very bad point in Canada’s relationship with the U.S. for a long time,” said Tom Wilker, an economics professor at McGill University in Montreal.

The controversy originated in the 1980s when US lumber companies called their Canadian counterparts unfair.

Whether Canada actually broke the rules is a matter of debate.

Canadian officials deny the government is subsidizing Canadian softwood lumber companies. US lumber companies still claim it does, and a Commerce Department report found that Canada subsidized lumber companies in 2004. It did not say whether the subsidy was ongoing.

According to the allegations, Canada subsidizes lumber companies because the government owns many lumber origins. This subsidy — on top of Canada’s vast supply of lumber — enables Canada to price its lumber below what U.S. companies can charge.

The World Trade Organization eventually sided with Canada, denying the U.S. claims, and the two sides reached an agreement in 2006 to end the tariffs.

However, that agreement and its subsequent grace period expired in October, and the two sides resumed negotiations. The Obama and Trudeau governments have been unable to reach a compromise before Obama leaves office, and the trade issue remains contentious, with U.S. lumber companies calling again for tariffs.

RELATED: ‘Without NAFTA,’ we’d be out of business

3. The Smoot-Hawley Act triggers the US-Canada trade war

Things got worse during the Great Depression. In 1930, Congress wanted to protect American jobs from global trade. Therefore, the United States imposes tariffs on all countries that export goods to the United States to protect workers.

It is called Smoot-Hawley Act. Today, it is widely believed that this law made the Great Depression worse than it was before.

Canada flew into a rage, retaliating against the US more than any other country, sparking a trade war.

“Canada is very angry … they raised tariffs on certain products to compete with the U.S. on par with the new tariffs.”

For example, the US raised the tariff on eggs from 8 cents to 10 cents (these were prices in the 1930s, after all). In retaliation, Canada also raised the tariff from 3 cents to 10 cents—a threefold increase.

Exports plummeted: In 1929, the United States exported nearly 920,000 eggs to Canada. After three years, it had shipped only about 14,000 eggs, according to Owen.

RELATED: Remembering Smoot-Hawley: America’s last major trade war

4. Canada imposes sky-high tariffs on U.S. eggs, poultry, and milk

Fast forward to today. The Smoot-Hawley Act is long gone, but Canada continues to impose high tariffs on U.S. imports of eggs, chicken and milk.

For example, some eggs have tariffs as high as 238% per dozen, according to to Agriculture Canada. Some imported milk, depending on the fat content, is as high as 292%.

“They’re so bulky, you can’t bring it over. There are no American eggs in Quebec,” Velk said.

According to the Canadian embassy in the United States, the reality is quite different. Despite some steep tariffs, Canada remains one of the largest export markets for U.S. milk, poultry and eggs, its officials said.

The US does impose tariffs on some goods from all countries, but nowhere near as high as Canada.

Experts say the tariffs continue to irritate some U.S. dairy and poultry farmers, some of whom face challenges selling to the Canadian market. But they doubt much has changed since the tariffs have been in place for decades.

RELATED: Those Reagan tariffs Trump likes to talk about

5. COOLer heads and the future of NAFTA

Despite all these controversies, experts stress that the trade relationship remains one of the best in the world.

In fact, the two countries are now so closely linked that when trade disputes erupt, U.S. companies have sometimes sided with Canadian companies against U.S. lawmakers.

For example, Canadian meat producers have contested U.S. laws requiring them to label cattle where they were born, raised and slaughtered. The Canadians say the law discriminates against the sale of their meat in the U.S. and took the case to the WTO.

The WTO sided with Canada, and last December Congress repealed the country-of-origin labeling law. U.S. meat producers — whose operations are intertwined with Canada — have actually sided with their Canadian counterparts, arguing that regulation is too onerous.

Regarding Trump’s proposal to tear up NAFTA, many experts in the United States and Canada said that renegotiation or termination of the agreement is not worth it. The three countries that are part of the agreement are entangled with each other, and unraveling all this integration will be bad for trade and economic growth.

–Editor’s note: This story was originally published on August 11, 2016. We’ve updated it.

CNNMoney (New York) First Posted Feb 13, 2017: 11:11AM ET

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