Trump withdraws from TPP, but offers Canada hope on NAFTA

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Donald Trump's administration is offering encouraging signs to the Canadian government, signalling it will move ahead with approving the Keystone XL pipeline proposal and is open to bilateral trade deals as it renegotiates NAFTA.

But the U.S. President also pulled out of the Trans-Pacific Partnership Monday, a move almost certain to kill the 11-country Pacific Rim trade deal championed by Ottawa.

After an election campaign dominated by Mr. Trump's promises to upend his country's trade relationship with Mexico, these steps marked Mr. Trump's first significant moves in relation to the U.S.'s neighbour to the north. The White House indicated Monday that he intends to meet with Prime Minister Justin Trudeau in the next month as he opens a renegotiation of the North American free-trade agreement.

White House press secretary Sean Spicer said Monday that the U.S. President would prefer to renegotiate NAFTA rather than tear it up. He said Mr. Trump would be meeting with both Mr. Trudeau and Mexican President Enrique Pena Nieto in the coming weeks to discuss a renegotiation.

Read more: What's at stake for Canada, Mexico and the U.S. in Trump's new NAFTA

Read more: Whether TPP or NAFTA, Canada needs to walk a careful line

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At stake is a trade relationship worth $663-billion (U.S.) annually. Mr. Trump's protectionist course is forcing Canada to sort out how to preserve its heavily integrated economy with its largest trading partner.

The new administration's retreat from free trade also threatens to disrupt Canada's attempts to forge trade agreements with other countries, as Ottawa could struggle to negotiate favourable deals without the U.S.'s economic weight at the table.

Mr. Spicer affirmed Monday that Mr. Trump would soon make good on his pledge to approve Keystone, a pipeline that would ship oil from Alberta to refineries on the U.S. Gulf Coast. Former president Barack Obama rejected the project after pressure from environmentalists.

"I'm not going to get in front of the President's executive actions, but I will tell you that areas like Dakota and the Keystone pipeline … that's something that he has been very clear about," Mr. Spicer told reporters at the White House. "It's good for economic growth, it's good for jobs, and it's good for American energy."

Hours earlier, Mr. Trump did sign an executive order pulling the United States out of negotiations for the TPP, a pact meant to smooth trade across the Pacific.

While the move is likely to disappoint Ottawa, the Trump administration offered a ray of hope that it would still keep trade flowing northward.

Mr. Spicer said Mr. Trump's complaint is with "multinational" trade deals because they are more complicated to renegotiate. But he said the President was open to bilateral deals – a sign that he might be willing to keep a deal with Canada, even if he makes good on his pledge to change the terms of NAFTA to make it harder for American companies to move to Mexico.

Mr. Spicer also said that Mr. Trump was open to renegotiating within the NAFTA framework, rather than simply throwing it out and starting from scratch.

"You could negotiate it within the current parameters and update it through the existing structure," he said.

Christopher Sands, director of the Center for Canadian Studies at Johns Hopkins University in Washington, said the problem for Canada will be losing access to the Asian and Australian markets that were set to open under TPP, and having to face the tough process of negotiating a new bilateral deal with Mexico.

While Mr. Trump will likely preserve the U.S.'s free-trade relationship with Canada, Dr. Sands said, Canada's smaller market does not have the same clout as America's does in compelling other countries to drop trade barriers.

"Canada was never on Trump's hit list – to some extent, he actually sees Canada as the U.S.'s number one customer. He wants to bring jobs back to the Midwest, and it's difficult to see how he would do that without the Canadian market," Dr. Sands said.

The end of NAFTA, however, would force Canada to negotiate a new, separate deal with Mexico – a process that would take time and, in the interim, could leave auto manufacturers and other companies with operations in both countries in the lurch.

It is unlikely that, without the United States' massive economic weight, Canada could ever achieve a deal that eliminates as many trade barriers as the TPP with Japan, Australia and other Pacific Rim countries.

"There is a huge potential market in Asia that was opening to Canada because the U.S. was at the table. That potential now looks like it's collapsing," he said. "Trump and Trudeau could put a patch on their relationship and keep the status quo. But Canada would be lucky to get a new deal with Mexico before the 2018 [Mexican] election. That would be a loss for Canada."

Some corporate interests that do cross-border business took a "glass-half-full" view of Mr. Trump's early moves vis-à-vis Canada.

Scotty Greenwood, senior adviser to the Canadian-American Business Council, said Mr. Trump turning his attention to Canada is a good thing: Once the President takes a closer look at the bilateral relationship, he will realize how advantageous it is for both sides, she said.

"Once he looks at the reality of the economy, he'll see how integrated the U.S. and Canada really are. The view of business really matters to this President, and business interests have close relationships with Canada," she said.

Ms. Greenwood said reopening NAFTA could actually be an opportunity to strengthen free trade by updating the deal. When it was signed in 1994, for instance, the pact did not contemplate the need for workers in the high-tech sector to move back and forth easily across the border.

Reuters reported Monday that Mr. Trump planned to send Jared Kushner, his son-in-law and one of his top advisers, to Mr. Trudeau's cabinet retreat in Calgary on Tuesday. A Canadian government source said that, while there had been initial plans for Mr. Kushner to meet with cabinet, the trip did not materialize.

With a report from Bill Curry