Resilience and Strain: Canada–U.S. Relations in 2020

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(Disponible en français : Résilience et tensions : les relations entre le Canada et les États-Unis en 2020)

In an address to the Canadian Parliament on 11 June 1947, U.S. President Harry Truman observed that the U.S. and Canada had reached a point where they no longer thought of each other as foreign countries. “We think of each other as friends, as peaceful and cooperative neighbors on a spacious and fruitful continent,” he observed.

Over the more than seven decades that have passed since Truman delivered his address, his vision of the bilateral relationship has largely held true. Though Canadian policymakers and citizens periodically experience uncertainty because of U.S. actions, the relationship continues to demonstrate its resilience.

In 2018, the U.S. administration imposed tariffs on certain Canadian steel and aluminum products, and the Canadian government responded with tariffs on some American goods. Polling in the same year showed that 46% of Canadians saw U.S. power and influence as a threat to their country, an increase from 38% in 2017 and 23% in 2013.

At the same time, the overall value of two-way merchandise trade in 2018 appears to have been largely unaffected by the tariffs, and Canadians made 44.4 million trips to the U.S. that year, a 4.7% increase from 2017. As well, the Canada–United States–Mexico Free Trade Agreement (CUSMA), sometimes referred to as NAFTA 2.0, is expected to come into force in 2020.

While the relationship has proved resilient, this note discusses three bilateral issues – one longstanding, one more recent, and one potential – that could surface or resurface in 2020.

Softwood Lumber

Valued at $7.8 billion in 2017, Canada’s softwood lumber exports to the U.S. are largely used in that country’s residential housing construction sector.

While it appears likely that all three signatories will ratify the CUSMA in 2020, that agreement – like the Canada–U.S. Free Trade Agreement and the North American Free Trade Agreement (NAFTA) that preceded it – does not address Canada–U.S. trade in softwood lumber products.

Instead, trade in such products has historically been managed through separate agreements, such as the most recent 2006 Softwood Lumber Agreement (SLA), which expired in October 2015.

After a year-long extension provided for by the SLA, American softwood lumber producers repeated their past behaviour: they sought and secured restrictions on Canadian softwood lumber imports through the application of countervailing and antidumping duties. The Canadian government has challenged these U.S. duties under NAFTA’s Chapter 19 dispute-settlement process and, in two separate cases, at the World Trade Organization.

At present, both countries maintain that the other has little interest in reinitiating negotiations designed to end the current softwood lumber dispute, and the U.S. duties have contributed to Canadian mill closures and job losses, particularly in British Columbia.

Safe Third Country Agreement

Under Canada’s Immigration and Refugee Protection Act, the Minister of Immigration, Refugees and Citizenship may designate a country as a “safe third country” to which asylum seekers can be returned to make their claim for protection.

In accordance with that Act, the Canadian government reached an agreement with the U.S. government that came into force in 2004 and is commonly known as the Canada–U.S. Safe Third Country Agreement.

The agreement creates an obligation for those seeking refugee protection in either country to do so in their first safe country of arrival, unless they qualify for one of the agreement’s four exceptions. Since it only applies to official ports of entry between the two countries, however, in what has been described as a “loophole”, those who cross between official ports of entry can also claim refugee protection.

In January 2017, President Trump signed executive orders on border security and interior enforcement, and on refugees and visa holders from designated countries. These were followed in 2018 by his administration’s “Zero Tolerance” policy towards undocumented immigrants.

In that context, thousands of people arrived in Canada from the U.S. through unofficial border crossings, putting pressure on Canada’s refugee system and creating processing backlogs for refugee claims. This situation also prompted legislative amendments in Canada to provide an alternative process for reviewing the protection needs of those who had a refugee claim in the U.S. and who had also claimed protection in Canada.

The Canadian government has stated that it remains committed to working with the U.S. government to modernize the Canada–U.S. Safe Third Country Agreement. Some observers, though, doubt the U.S. would agree to amendments that result in asylum seekers being returned to the U.S.

Taxing Large Digital Technology Companies

Like France, the Canadian government has proposed a 3% tax on certain revenues that multinational digital technology companies – such as Google, Facebook and Amazon – generate in the country.

A 29 September 2019 Parliamentary Budget Officer analysis estimated this tax would raise $540 million in 2020–2021 and $1.2 billion by 2028–2029.

Because of its allegedly discriminatory impact on American companies, the Trump administration has responded to the proposed French tax by threatening tariffs of US$2.4 billion on a range of French imports, including luxury handbags, cheese and wine.

According to some observers, the proposed Canadian tax could provoke a similar U.S. response.

The U.S. Chamber of Commerce, which is opposed to Canada’s proposed tax, has stressed that the Organization for Economic Co-operation and Development (OECD) is leading promising negotiations on a multilateral solution to the challenge of taxing multinational digital technology companies.

While the Canadian government has committed to working with the OECD on a multilateral basis, it has also committed to implementing its digital services tax by 1 April 2020.

Stronger than the Politics of the Day

Though these three issues and others could increase tensions between Canada and the U.S. in the short and medium term, some former Canadian and American diplomats have stated their belief that no single issue can permanently impair a relationship that has stood the test of time.

Michael Kergin, for instance – a former Canadian ambassador to the U.S. – has likened the Canada–U.S. relationship to a ship in rough waters that “always rights itself in the end.” From the U.S. perspective, David Jacobson – a former U.S. ambassador to Canada – has said the relationship is “stronger than the politician of the day or the politics of the day.”

Additional Resources

Colin Robertson, Prime Minister Justin Trudeau: A Foreign Policy Assessment 2015-2019, Canadian Global Affairs Institute, January 2020.

Tamara M. Woroby, Finding Commonalities Amidst Increasing Difference in Canadian and U.S. Immigration Policies in Canada-US Relations Sovereignty or Shared Institutions, ed. David Carment and Christopher Sands, Canada Among Nations 2018, Palgrave Macmillan, 2019.

Author: B. J. Siekierski, Library of Parliament

Categories: Business, industry and trade, International affairs and defence

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