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World Trudeau's challenge on trade: managing both trump and domestic politics

OTTAWA, Ontario — The security fences are coming down. And the world leaders have jetted off.

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But for Prime Minister Justin Trudeau of Canada, the troubles have just begun.

After the disastrous finale of the Group of 7 summit meeting, Trudeau is now caught in a tight spot between the unpredictable President Donald Trump and the powerful Canadian dairy industry, the current target of Trump’s escalating trade threats. The prime minister’s challenge is how to manage both the most important Canadian ally and his own domestic politics.

“Trudeau is in a very difficult place because the G-7 summit signals the approach the Trudeau government took to deal with the Trump administration has failed,” said Wesley Wark, a professor of public and international affairs at the University of Ottawa. “The charm offensive has produced little of what the prime minister hoped.”

Even before Trump came to power, Trudeau, and his closest aides and Cabinet members rushed to connect with the new president and his advisers. And despite Trump’s unpopularity in Canada, Trudeau scrupulously avoided criticizing the president.

Trump rewarded the effort with his hard-line positions on reworking the North American Free Trade Agreement, duties on Canadian lumber, steel and aluminum, and insistence that national security concerns justified those measures — to Canadians, an insulting position to take.

Now Trump is challenging Canada’s longtime dairy system, which uses high tariffs to largely exclude imports. He is also angry about exports from the Canadian automotive industry, the backbone of the country’s manufacturing.

The prospect of a full-on trade war is an alarming proposition; trade with the United States is the economic lifeblood of Canada. But Canadian political, and economic, realities also dictate that Trudeau cannot give in to the president’s trade demands.

Oddly, though, Trump’s attacks — and especially his extraordinarily personal vitriol about Trudeau over Twitter as he departed the Group of 7 talks — may have revitalized the prime minister’s political career even as his popularity in polls was falling and questions about his leadership growing.

In an exceptional step, Canada’s House of Commons set aside partisanship to unanimously pass a motion on Monday from the opposition New Democratic Party that endorses the Trudeau government’s decision to strike back against the steel and aluminum measures with tariffs on a wide variety of U.S. products.

It also condemned the attacks on Trudeau and voiced Parliament’s support for the country’s dairy system.

“In the short term he’s getting huge support from everybody,” said Jack Granatstein, a prominent Canadian historian who has long written about relations between the United States and Canada.

“But if NAFTA sinks or there’s a serious trade war, he will carry the can,” Granatstein continued. “We cannot win a trade war with 75 percent of our trade going to the U.S. We’re highly vulnerable to American actions. He has to deal with the survival of the Canadian economy.”

In recent days, Trump has focused mainly on Canada’s dairy system, known as “supply management,” which is a long-standing irritant between Canada and several other countries, including the United States.

Under supply management, which came into existence during the 1970s, the amount of milk that dairy farmers in Canada can produce is set through a tightly controlled quota system. That keeps prices high and stable. Tariffs of up to 300 percent largely shut out competition from imported milk, cheese, butter and other dairy products.

Still, the United States sells about five times more dairy products to Canada than Canada exports south.

Nonetheless, the supply management system riles up Trump, who says the Canadian market should be fully opened to American dairy farmers. At the moment, those Americans farmers are producing too much milk and facing lower prices.

“The U.S. position on supply management hasn’t changed since President Obama,” said Meredith Lilly, a professor of international affairs at Carleton University in Ottawa and the former international trade adviser to former Prime Minister Stephen Harper. “This president is certainly talking about it more openly and aggressively.”

While dairy farming is a relatively small part of Canada’s economy, its farmers are a powerful political force in parts of Ontario and Quebec.

Farmers own their valuable milk quota assignments and trade them like taxi medallions in the age before Uber. Many often rely on those sales as their pensions and vigorously protest any perceived threat to the system.

Politicians of all political stripes have avoided pushing back, and Canada has won exemptions for the system in several trade agreements, including NAFTA and, most recently, a free-trade pact with Europe.

Exactly how much Canadians generally know about the system and support it is an open question.

Many economists, including Sylvanus Kwaku Afesorgbor, an assistant professor of agricultural economics at the University of Guelph in Ontario, say that while it allows Canadian farmers to prosper, it unfairly inflates the grocery bills of all Canadians.

“They are trying to protect a few thousand farmers at the expense of millions of Canadians,” he said.

There have been signs that Canada might consider some changes to supply management. Wark, however, and many others, said that by bringing this issue into his trade battle, Trump had ensured that Canada would not back down when it came to the system, which also covers poultry and eggs.

Trudeau’s options now are not certain.

Lilly, the former adviser to Harper, said she did not believe that Trudeau’s efforts to influence the president’s inner circle had been in vain and that they might yet produce some kind of settlement.

Wark said he anticipated that Trudeau and his Cabinet would now be giving more interviews to the U.S. news media and redoubling their efforts to build support with members of Congress and state and local politicians.

But Granatstein, who is retired from York University in Toronto, said he did not think that Trudeau had a winning hand to play.

“You either resist and ruin the economy or you give in and get creamed in the next election for selling out,” he said, adding that one thing now seems clear. “I thought that anti-Americanism was over in Canada. Clearly I was wrong.”

This article originally appeared in The New York Times.

IAN AUSTEN © 2018 The New York Times

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