(Bloomberg) -- Chrystia Freeland’s decision to resign as Canada’s finance minister isn’t merely a political earthquake that’s shaken Prime Minister Justin Trudeau. It’s set to change the coming trade fight between the US, Canada and Mexico.
Freeland was sometimes called the Minister of Everything in the Canadian capital. The former deputy prime minister had her hands on many important files, including the decision to hit China with tariffs on electric vehicles. Two days after Donald Trump won the US election, Trudeau restarted a dormant cabinet committee on Canada-US relations — and put Freeland in charge.
There was a reason for that. It was Freeland who led the Canadian side during the bruising, but ultimately successful, renegotiation of the North American Free Trade Agreement in 2018 — which became the US-Mexico-Canada Agreement. Canadian magazine Maclean’s ran a cover photo of her smiling with the headline: “You’re Welcome, Canada.”
Without her, the prime minister has to recalibrate. And he’s on the back foot after her parting shots, which cast doubt on his preparation for a clash with Trump.
“She’s proven to be a good negotiator and somebody who is not bothered by being taunted or called names,” said Eric Miller, president of Rideau Potomac Strategy Group, a consulting firm in Washington. “She just sort of plows forward and does her thing. So she was a good person to have in the chair.”
Trump, who has made a game of taunting Trudeau since the election, has been hostile about Freeland. After her exit on Monday, he posted on his Truth Social platform that she “was totally toxic, and not at all conducive to making deals which are good for the very unhappy citizens of Canada.”
Some observers say that barb is merely a sign of her skill.
“The fact that Freeland was not praised as being popular and easy to get along with by the other side was probably a characteristic in her favor,” said Laura Dawson, executive director of Future Borders Coalition, a pro-trade group that advocates for efficiency at the border.
Former US Treasury Secretary Lawrence Summers, who Freeland has described as a mentor after they met at Harvard University when she was a student, said by email: “Chrystia’s extraordinary insight on the United States made her a huge asset while working on these highly complex issues. Her decision is completely understandable as she had the responsibilities, without the authority.”
With little more than a month until Trump returns to the White House, Trudeau has turned to Dominic LeBlanc, a childhood friend and longtime ally, to pick up Freeland’s brief. As public safety minister, LeBlanc was already in charge of trying to deal with one of Trump’s complaints about his northern neighbor: border security. LeBlanc and Trudeau dined with the president-elect at his Mar-a-Lago club in November; Freeland did not make that trip.
The US and Canada have one of the world’s largest bilateral trading relationships, and it’s more balanced than others. The US ran a $252 billion deficit in goods and services with China last year and a $162 billion deficit with Mexico, on a balance-of-payments basis, according to US government data.
The deficit with Canada was $41 billion — in large part thanks to millions of barrels a day of Canadian crude oil shipped to US refineries.
But Trump appears to take the view that trade deficits are equivalent to subsidies to other countries. So it falls to LeBlanc, 57, to make the case, as Freeland did, that the US has more to lose than gain from punishing Canada with tariffs.
LeBlanc has politics in his blood. His father was press secretary in the late 1960s and early 70s to then-Prime Minister Pierre Trudeau — Justin’s father. LeBlanc, who represents the eastern province of New Brunswick, is a fixture of Trudeau’s Liberal Party, having been an elected member of the House of Commons for 24 years.
“He’s pretty unflappable,” said Fen Hampson, an international affairs professor at Carleton University in Ottawa. “He’s a very good retail politician. And if there’s anyone who can handle Trump and the people around him, it’s probably him.”
LeBlanc’s challenge, Hampson said, is “how do you stop Trump’s demands on Canada from escalating?”
Wilbur Ross, who sparred with Freeland over steel, aluminum and lumber tariffs as commerce secretary in Trump’s first term, agreed she was a strong negotiator.
“But so are most people in those positions, so that’s not a surprise,” he said by phone. “The real surprise is: What does it mean for the internal politics of Canada as they try to frame a response to President Trump’s initiative?”
During the trade battles of Trump’s first term, Trudeau was still relatively popular in Canada, while Trump was new to the levers of power in Washington. That dynamic is different this time, with Trudeau’s grip on power slipping and a resurgent Trump leading a team of loyalists signed on to his agenda.
“Going into a complex negotiation like the one Canada is heading into, you want to have a strong negotiating team with a united message,” said Miller, the consultant.
But as Trudeau is peppered by questions over his own political survival, provincial premiers are “freelancing” their responses to Trump, Hampson said. That underscores the prime minister’s depleted influence, and sets up the risk Trump can “essentially pick the provinces off — it’s divide and conquer.”
Doug Ford, premier of Ontario, suggested last week that Canada’s most populous province may retaliate against US duties by stopping southbound electricity exports. But the leaders of oil-rich Alberta and French-speaking Quebec said they won’t shut out their biggest trading partners.
There’s only so far comments like Ford’s can take Canada, Ross said.
“Telling Trump that you’re gonna be tougher and stronger than he is — that is not a very likely winning proposition,” he said. “The amount of damage that the US could do to Canada is far greater than the amount of damage that Canada could do to the US. That’s not a reason that they should be abused, but I think one of the keys to any negotiation is to have a realistic assessment of your own negotiating position relative to that of the counterparty.”
Trump’s threat of 25% tariffs against Canada and Mexico was a “grenade” that panicked provincial leaders, said Paul Samson, a former Canadian trade official who’s now president of the Centre for International Governance Innovation, a think tank.
He expects the US to be more proactive than Canada in setting out a list of demands. The US, for example, has a longstanding objection to Canadian dairy trade barriers, known as “supply management.” Another issue could be a new digital services tax that Freeland implemented as finance minister, levying 3% against the revenue of some larger tech companies, which has rankled US officials.
That said, Canada has done this before and knows the pressure points it can push.
“One of the key strategies here for Canada — and the US doesn’t like it — is to talk to governors directly, and senators, and say ‘Look, you export a lot of bourbon,’” Samson said. That’s a reference to when Trudeau’s government taxed American whiskey and other goods in retaliation for Trump’s 2018 levies against Canadian steel and aluminum.
Some say the varied messages coming from Canadian politicians are part of a wider strategy.
“They have just been looking at different pieces of the puzzle,” Dawson said. “Doug Ford, for example, coming forward with a more assertive approach and the federal government being more measured and cautious, I don’t think that is a fundamental incompatibility. That is two sides of the same goal.”
(Updates with comment from Lawrence Summers in ninth paragraph.)
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