Prime Minister Trudeau promised that a new Nafta agreement would be a “win-win-win deal.  It wasn’t.  Canada got the “short end of the stick,” but the government is pulling out all the stops to spin it as a success.

The North America Free Trade Agreement (Nafta) is no more.  As of midnight September 30, it was replaced by a new pact, the United States Mexico Canada Agreement.  (USMCA)  What is glaringly obvious is that name of the new agreement doesn’t even mention Free trade Lorne Gunter of describes it best: “It is a managed trade deal, not a free trade one.”

A win-win-win agreement implies that all parties are better off when the deal is signed.  That won’t be the case for Canada and Mexico.  Both countries made concessions to the United States benefit.

On August 4, Prime Minister Trudeau swore he would protect Canada’s dairy supply management program, in a British Columbia interview, and repeated the claim in another interview at the end of the month.  That promise soured quicker than an unrefrigerated cup of cream in a hot room.

On October 1, Canadian dairy farmer woke to the news that they were giving the Americans access to another 3.5% of the dairy industry while eliminating Class 6 and 7 milk categories.  (milk used to process skim milk powder, milk protein or ultra-filtered milk) The 3.5% is over and above the 3.6% concession made to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.  (CPTPP) meaning the Canadian dairy industry will lose about 7% of its domestic market to foreigners.

The American’s successfully negotiated an increase in local content requirements for automobiles and parts to 75% from 62.5% and capped Canada’s duty-free auto export level at 2.6 million vehicles.  That is well above the current production of 2.1 million.  It also insulates Canada if President Trump imposes tariffs on cars using Section 232, the President’s National Security excuse.  Americans are still in the driver’s seat.

Canada did not win an exemption from the Section 232 tariffs levied on Steel and aluminum imports.

Canada gave in to US demands to extend patent protection for some prescription drugs from 8 years to 10 years.

Calling the new USMCA a success is the same as casual casino gamblers equating a losing session at the tables the price for having a “fun” night out.  There is no doubt that Canada is worse off under USMCA than it was under Nafta.

For the Bank of Canada, USMCA is a win. The deal lifts the shroud of uncertainty that had enveloped their economic forecasting crystal ball.  Bank of Canada Governor (BoC) Stephen Poloz has had to temper his economic outlook due to the uncertainty around the trade talks exacerbated by an ever-present risk of a Twitter tirade triggering a total collapse.  Mr Poloz is on record for saying that BoC policy was data-dependent, not headline dependent” but only a fool would believe that the state of the trade talks wasn’t part of the policy discussions.

Bank of Montreal economists concluded that the new agreement means the BoC will not only hike interest rates at the October 25 meeting but do so again at the January 9, 2019 meeting.  The Canadian dollar rallied on the news of a trade agreement, extending earlier gains from better than expected July GDP data.The rally halted at the 78.25 cent level (USDCAD 1.2880) as the euphoria from the news faded.

Financial markets and traders are shifting their focus to the more mundane macroeconomic influences, and one of the major influences is the price of oil.  West Texas Intermediate, (WTI) the North American benchmark price for crude has risen 32% since February 13 and posted a new 2018 high on October 3 when it touched $76.86/barrel.  The rally is because of President Trump’s hostile view of Iran.  He pulled the US out of the Joint Comprehensive Plan of Action, (JCPOA) which is also known as the Iran Nuclear deal. in May and levied sanctions.  The full effect of the sanctions  take effect on November 4.  After that date,  according to the Wall Street Journal, “all companies and individuals will be barred from buying Iranian oil, conducting business in Iran’s ports or shipping industry, and they will be required to cut ties to Iran’s insurance sector and dealings with its central bank.  If they don’t comply, they face severe US penalties which include barring access to the US market.  The correlation between the Canadian dollar and WTI has frayed over the past months but appears to be reasserting itself at the moment.  Higher WTI prices will support the Canadian dollar, or at least slow losses, despite the hefty discount between WTI and Canada’s benchmark export, Western Canada Select (WCS)

The new USMCA may not be a “win-win-win” deal, like Prime Minister Trudeau says.  However, it is hugely superior to the alternative of a no-deal which may have resulted in 25% tariffs on Canadian cars.  President Trump leveraged the size and scale of the US economy to bully Canada and Mexico into giving him minuscule trade concessions, that in terms of the $19 trillion American economy, will amount to little more than a rounding error.  The real spin is Trump calling it a win, rather than by its true name, extortion.