America’s NAFTA: Canada, not Mexico

NAFTA explained

America and Canada have one of the most important trade relationships in the world.

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

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

But the trade relationship between the US and Canada over the years has not been as smooth as you might think. There have been trade wars, acts of retaliation, allegations of dumping and job losses.

“Our trade relationship is obviously strong … but the relationship has been difficult, despite the agreements we have,” says Stuart Trew, editor of the Canadian Center for Policy Alternatives, a think tank in Ottawa, Canada’s capital .

Trump has often criticized Mexico and NAFTA, the trade agreement between the US, Mexico and Canada. But Canada is rarely mentioned.

However, there have been more NAFTA dispute claims against Canada, almost all by US companies, than against Mexico. Even today, Canada has tough tariffs against the United States, and the two sides only recently settled a bitter beef dispute.

Most leaders and experts stress that trade ties between the two nations are strong and mostly positive. But Canada and America have had many battles along the way.

Trump now wants to renegotiate NAFTA, which will be at the top of the agenda for his meeting with Trudeau.

1. Canada has more problems with NAFTA than Mexico

Listening to Trump, you might think that Mexico is the bad actor in NAFTA. But since NAFTA’s creation in 1994, there have been 39 complaints filed against Canada, almost all by American companies. Known in the industry as investor-state dispute settlement, it allows companies to settle cases under a special panel of NAFTA judges instead of local courts in Mexico, Canada or the United States.

There have only been 23 complaints against Mexico. (By comparison, companies in Mexico and Canada have filed a total of 21 complaints against the US)

And increasingly, Canada is the target of American complaints. Since 2005, Canada has been affected by 70% of NAFTA dispute claims, according to CCPA, a Canadian research firm.

2. The wooden battle between the USA and Canada

NAFTA is not the only area affected. In 2002, the US slapped a tariff of about 30% on Canadian lumber, claiming that Canada was “dumping” its lumber on the US market. Canada rejected the claim, arguing that the tariff cost its lumber companies 30,000 jobs.

“It was a very sour point in Canadian-American relations for quite some time,” says Tom Velk, a professor of economics at McGill University in Montreal.

The dispute had its origins in the 1980s, when American lumber companies said their Canadian counterparts weren’t playing nice.

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

Canadian officials deny the government is subsidizing softwood lumber companies in Canada. US timber companies still allege it does, and a US Commerce Department report found that Canada was providing subsidies to timber companies in 2004. It did not say whether the subsidies were in course

According to the allegations, Canada subsidized timber companies because the government owns much of the land where the timber comes from. This subsidy, in addition to Canada’s huge supply of lumber, allowed Canada to price its lumber below what American companies can charge.

The World Trade Organization eventually sided with Canada, denying the US claim, and the two sides reached an agreement in 2006 to end the tariff.

However, that deal and its subsequent grace period expired in October, and the two sides are back at it. The Obama and Trudeau administrations were unable to reach a compromise before Obama left office, and it remains a contentious trade issue with U.S. timber companies once again calling for tariffs.

Related: ‘Without NAFTA’ we’d be out of business

3. Smoot-Hawley triggers the trade war between the US and Canada

Things got even worse during the Great Depression. In 1930, Congress wanted to protect US jobs from world trade. So the US slapped tariffs on all countries that shipped goods to America in an effort to protect workers.

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

Canada was furious and retaliated more than any other country against the US, sparking a trade war.

“Canada was so outraged that … they raised their own tariff on certain products to match the new US tariff,” according to Doug Irwin, a Dartmouth professor and author of “Peddling Protectionism: Smoot-Hawley and the Great Depression” .

For example, the US raised a tariff on eggs from 8 cents to 10 cents (these are 1930s prices, after all). Canada retaliated by also raising its tariff from 3 cents to 10 cents, a threefold increase.

Exports declined sharply: in 1929, the US exported nearly 920,000 eggs to Canada. Three years later, it shipped only about 14,000 eggs, according to Irwin.

Related: Remember Smoot-Hawley: America’s Last Great Trade War

4. Canada’s high tariffs on US eggs, poultry and milk

Fast forward to today. Smoot-Hawley is long gone, but Canada continues to levy high tariffs on US imports of eggs, chicken and milk.

For example, some tariffs on eggs are as high as 238% per dozen, according to Canada’s Department of Agriculture. Some milk imports, depending on the fat content, reach 292%.

“They’re so expensive that you can’t get it in. There are no American eggs in Quebec,” says Velk.

According to the Canadian Embassy in the US, the reality is very different. Its officials say that despite some harsh tariffs, Canada is one of the top export markets for American milk, poultry and eggs.

The US has tariffs on some products from all countries, but they are not as high as Canada’s.

Experts say those tariffs continue to trouble some U.S. dairy and poultry producers, some of whom are challenged to sell into the Canadian market. But they doubt much will change since the tariffs have been in place for decades.

Related: Those Reagan Tariffs Trump Loves to Talk About

5. Cooler heads and the future of NAFTA

Despite all these disputes, experts emphasize that this trade relationship remains one of the best in the world.

In fact, the two countries are so interconnected now that when trade disputes erupt, American companies will sometimes side with Canadian companies and against American lawmakers.

For example, Canadian beef producers contested a US law requiring them to label where their cattle were born, raised and slaughtered. The Canadians said the law discriminated against their meat being sold to the US and took the case to the WTO.

The WTO sided with Canada, and last December, Congress repealed the country-of-origin labeling law. American meat producers, whose business is intertwined with Canada, actually supported their counterparts in Canada, arguing that the regulation was too onerous.

As for Trump’s proposal to tear up NAFTA, many American and Canadian experts say it’s not worth renegotiating or ending the deal. The three countries that are part of the agreement are so intertwined with each other that unraveling all of this integration would be detrimental to trade and economic growth.

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

CNNMoney (New York) First published on February 13, 2017: 11:11 am ET

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