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Why Washington Shouldn’t see Vietnam as the Next China


Why Washington Shouldn’t see Vietnam as the Next China

In a recent Senate Finance Committee report, U.S. Trade Czar Robert Lighthizer opined that Vietnam must take action to curb its growing trade surplus with the U.S., including removing barriers to market access for U.S. companies.

While it is true that Vietnam’s trade surplus has grown significantly in 2019, much of it is the result of the trade war between the U.S. and China that has prompted importers to source from Vietnam as an alternative to China.

Rather than attempt to stunt Vietnam’s trade surplus through tariffs or other trade actions, Washington should be establishing alliances with countries in Southeast Asia as part of its quest to ensure balanced trade and market stability.

Lighthizer’scomments were in response to queries from the Committee and echoed previous statements made by White House administration officials who have identified Vietnam as one of several countries to watch with respect to trade activity. And while there hasn’t been a direct threat of imposing tariffs on Vietnamese imports, the recent implementation of a 400% duty on Vietnamese steel imports and the recent rhetoric in Washington regarding transshipment has many businesses nervous that their new safe haven may be the President’s next target for trade action.

Troublesome to United State Trade Representative (USTR) is that the surplus thus far in 2019 is already more than 30% higher than it was at this time last year, making Vietnam the leading nation in terms of percentage increase of import value in 2019.

Hastening trade imbalance

Washington has been at least somewhat complicit in hastening Vietnam’s growing trade surplus. Since the U.S. began imposing tariffs on China-origin goods, many U.S. companies (and some Chinese companies) have been looking to shift production to neighboring markets in Asia. A recent poll of U.S. companies by the U.S. Chamber of Commerce in China showed that more than 40% of American companies with production in China were looking to move to a neighboring country if they hadn’t already done so. These include the likes of Dell, HP, Steve Madden, Brooks and others. Even non-U.S. companies, like Japan’s Nintendo and China’s own electronics giant TCL are looking to shift production out of China and into Vietnam.

Vietnam was an obvious choice for many of these manufacturers looking to circumvent Washington’s onerous tariffs. For years, Vietnam has been investing heavily in improving its roadway and port infrastructure, as well as augmenting its pool of high-skilled laborers so that it can attract large hi-tech giants. The advancements were well-timed to coincide with increasing wages and regulatory restrictions in China that were driving up costs and forcing foreign producers to look elsewhere for low-cost manufacturing alternatives. This was taking place well before the current administration in Washington began cracking down on China’s questionable trade practices.

To be fair, Washington does have some cause for complaint. It’s one of Asia’s worst kept secrets that Vietnam, Malaysia and Thailand have become convenient transshipment hubs for Chinese companies looking to circumvent quotas and, more recently, tariffs by making minor tweaks in neighboring countries to products almost wholly manufactured in China and sending them along to the U.S. as “Vietnamese” or “Malaysian” exports. In the end, there is little monetary gain for Vietnam and much opportunity for reputational damage. Hanoi’s incentive for playing along is purely political; it wants to placate China, its much larger neighbor and regional hegemon.

Hanoi has already said it will crackdown on Chinese transshipments labeled as being of Vietnamese origin. Nikkei Asian Review is reporting the Vietnamese government is considering new rules that would require 30% of a good’s price to be comprised of Vietnamese manufacturing for it to be considered as being of Vietnamese origin. Whether or not this will pacify the USTR remains to be seen.

Yet while Chinese transshipments may have been a catalyst to Vietnam’s soaring trade surplus, the ongoing U.S-China trade war has unquestionably accelerated the development of a trend that was only in its infancy a few short years ago.

If Washington is looking to penalize Vietnam for a trade surplus born out of Washington’s trade war with Beijing, where will the cycle of tariffs end?

Options for low-cost sourcing plentiful

Let’s assume Washington succeeds in quelling the growth of Vietnam’s trade surplus by imposing tariffs in the same manner it has with China, the EU and other entities. The likely outcome will be that U.S. companies then look to Thailand, Myanmar, Bangladesh or Cambodia (as many have already) to replace or supplement their production in China.

Let’s assume that Washington then imposes similar tariffs on imports from those countries. The likely outcome will be that U.S. companies then shift their attention to India, Mexico or any other country that offer lower cost labor and limited regulatory burden. And on and on it goes.

Washington wants to see production repatriated back to the United States, but only six percent of American companies moving production out of China are looking at reshoring their manufacturing facilities. One of the key reasons is that the facilities currently in China are intended to support regional exports and reshoring production to the U.S. would result in unnecessary transport costs and time in transit. In other cases, the cost of moving production to the U.S. could be too onerous to allow companies to compete globally.

A battle worth waging – along with friends and allies

This is not to suggest Washington’s war on China’s unsavory trade practices is unjust or futile. On the contrary, China’s history of misappropriating intellectual property through technology transfer, cybersecurity incidents and other trade violations requires America to act. But tariffs only punish American companies that will continue to shift their production as necessary to reduce their landed costs.

Instead of reprimanding and punishing countries like Vietnam with tariffs in response to growing trade surpluses, Washington should be working with them to forge alliances that will ensure China is forced to play by the rules.

If the U.S. truly wants to stave off bad actors such as China from continuing to abuse the global trade’s rule-based system, it will need the support of friends and allies in the eastern and western hemispheres. Acting alone and imposing unilateral restrictions only throws Washington into a battle of wills for which collateral damage is certain, but the outcome remains unknown.


Cora Di Pietro is vice president of Global Trade Consulting at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations. She can be reached at

USMCA Sunset Clause Offers Potential Resolution to Ratification Impasse

Those who have been closely following the saga of revamped free trade in North America will know well that the fate of the United States-Canada-Mexico Agreement (USMCA) could very well be decided on the degree to which lawmakers are able to suspend their cynicism over labor reforms in Mexico to buy into the labor-enforcement provisions set out in the agreement.

Democrats in Congress want to see labor-enforcement provisions within the USMCA made stronger, clearer and part of the actual agreement (as opposed to a side letter). Their demands stem from the fear the USMCA will do little to curb the flight of manufacturing jobs from the United States and into Mexico where workers are paid less and there are fewer regulations with which to contend.

These concerns are fair and warranted, but both Mexico and Canada have unequivocally stated they do not intend to reopen negotiations. Mexico in particular, which just recently passed a labor reform bill that will allow workers to vote on unions and their labor contracts via secret ballot, has said no further concessions will be made.

All three parties have dug in their heels, making ratification of the USMCA seem unlikely in the near term. And yet the agreement’s ratification is crucial to the ongoing prosperity of all three countries’ economies and to North America’s status as the world’s largest trading bloc. Failure to ratify the USMCA won’t simply mean that free trade will revert back to NAFTA. The president has stated repeatedly that if the USMCA isn’t ratified, he will unilaterally withdraw from NAFTA, pitting himself against lawmakers in Congress and putting the future of free trade in North America in jeopardy.

Sunset can brighten gloomy outlook

While each party presents a valid position, digging in on labor provisions (and, more peripherally, environmental ones) that prolong trade uncertainty in the largest trading bloc in the world is entirely unnecessary.

There are valid mechanisms in place that Democrats can use to ensure the enacted labor reforms are enforced and that Mexico is holding up its end of the bargain with respect to labor practices.

When the USMCA was signed in November 2018, it included a sunset clause that had been a source of tension and controversy during the negotiation period. The purpose of the clause was to force the parties to revisit the deal periodically to ensure it is working as it should for all involved. In its final iteration, the clause would see the USMCA automatically terminated 16 years after its implementation. However, six years after implementation, a joint review of the agreement would take place, at which time the parties could unanimously choose to extend the sunset period to 16 years from the six-year review, with another joint review to follow six years later. Failure to achieve unanimity at any six-year interval would require additional reviews to take place each year thereafter until the initial 16-year period concludes or until a consensus is reached on how to address the complainant party’s concerns.

If that sounds awfully and unnecessarily complicated, that’s probably because it is, particularly since the USMCA allows for any one party to withdraw from the agreement at any time with a six-month notice, making a sunset clause gratuitous. Nevertheless, it is how the current text of the agreement reads and, barring the unlikely possibility of the USMCA’s renegotiation, is how the agreement will be implemented.

Drifting off into the sunset

Assuming no one party relents, the most obvious way around the impasse would be for Democrats to ratify the agreement as it is currently written with the intent to watch closely how its labor provisions are enforced in Mexico. (Precisely how the monitoring of enforcement will take place is a separate but related disagreement between the White House and Congressional Democrats.)

After six years, there will be an opportunity to review the agreement and put Mexico on notice that it will need either to better enforce the labor provisions set out in the USMCA or see the U.S. exit the agreement when the 16-year period closes. In the event the annual review gets bogged down in bureaucratic inefficiency, lawmakers and the president of the day will have the withdrawal clause at their disposal to expedite compliance.

Unfortunately this will put U.S. industry in a Catch 22 position. Those businesses invested heavily in Mexican production will have to choose either to remain steadfast in their support of Mexico’s existing cost-effective labor regime or align with USMCA detractors in Congress at that time to exert pressure on Mexico to improve enforcement of labor provisions with the understanding that their failure to do so could put free trade in North America in danger.

Relying on the sunset clause may seem to be the equivalent of kicking the can down the road. However, the interim period would offer tremendous benefit. It would provide businesses the opportunity to adapt to the agreement’s new provisions and reconfigure their supply chains to make optimal use of the USMCA. It would allow production practices in Mexico to adjust to new labor and environmental provisions. It would offer Mexican officials the chance to demonstrate to the U.S. government that they intend to honor their USMCA commitments (not just in spirit, but in practice), and would demonstrate to Mexican officials that U.S. lawmakers are willing to give them the benefit of the doubt. Most importantly it would allow for stability to return to North America’s trade environment and the businesses and consumers who rely on it for prosperity and cost efficiency.

It may not be a perfect solution, but it is a viable alternative to the current options of lingering trade uncertainty, or worse yet, quashing the USMCA altogether and potentially precipitating a presidential decree to withdraw from NAFTA and with it a lengthy legal battle over the president’s legal authority to do so.

Cora Di Pietro is vice president of Global Trade Consulting at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations. She can be reached at

New NAFTA would govern North American shipments of export cargo and import cargo in international trade.

Can-Am trade will persist—with or without NAFTA

Given recent headlines around the fate of the North American Free Trade Agreement (NAFTA), it’s understandable why some observers might believe the sky will be falling quite imminently.

Threats of Canada being excluded from what has essentially been a bilateral pact concluded in principle between the United States and Mexico could lead one to conclude that historically viable, cost-effective, continental supply chains are now at risk of obsolescence. Factories and distribution centers will be mothballed and billions in past investments will be vanquished with the stroke of a pen.

This doomsday picture presumes the worst-case scenario, namely that members of Congress will passively rubberstamp a bilateral US-Mexico agreement without regard for the protestations of the business community, labor groups and their very constituents. While such a scenario isn’t impossible it is highly improbable.

But let’s assume for a moment that such a scenario were to be realized; that Washington would exclude Canada from its long list of free trade partners. What would the outcome be and who would suffer most?

Certainly, the impact would be felt on both sides of the 49th parallel. US businesses that had previously enjoyed the liberty of being able to transport goods across the Canadian border without tariffs or duties would then face increased landed costs. In some cases, this might negate the value proposition associated with sourcing goods from Canada and/or selling wares in the Canadian market.

For many businesses, however, the most likely outcome of Canada being excluded from free trade with the US would be simply business as usual.

The reality is that Canada and the US are each other’s most valuable trade partners and abolition of free trade between them won’t change that.

That’s not just cheerful optimism. It is borne out in the latest trade data between the two nations. Despite Washington’s attempt to shrink the trade gap between the US and Canada, Canadian merchandise exports to the US rose 3.3 percent in July to $38.4 billion, bringing its monthly trade surplus ($5.3 billion) with the US to its highest level in a decade. US exports to Canada declined a negligible 0.1 percent.

Conversely, Canada maintains a trade deficit with the rest of the world of $5.5 billion, up from $4.8 billion in June. These are telling numbers given that Canadian businesses have had a free trade agreement in place with the European Union – a market of 500 million – for a full year now, and is on the cusp of implementing a free trade deal with 10 other Pacific Rim nations. International free trade options for Canadian businesses abound, but it’s their trade with the US that continues to grow.

But what about those steel and aluminum tariffs? It seems they’re having the opposite of their intended effect. Washington’s goal in imposing the tariffs was to reduce American businesses’ reliance on foreign metals. As it turns out, Canadian steel exports subject to US tariffs grew by 16.4 percent in July while aluminum exports declined only two per cent. Conversely, US steel exports to Canada fell 40 percent and aluminum exports to Canada fell 5.2 percent.

Collectively, this trade data would suggest that trade between the nations will persist even in the event it’s expensive to do so. That’s mainly because the advantages trade offers to businesses on both sides of the border go beyond the cost savings associated with NAFTA. Those “other advantages” relate to a wide range of factors, including proximity to market, market share, cost of labor, labor access and availability, tax environment, exchange rates, and a wide range of other considerations.

Perhaps the only exception to this rule lies in the fate of the ongoing possibility the US could impose tariffs of 25 percent on Canadian auto imports. This would be devastating to Canada’s auto sector where US automakers host numerous production facilities and from which they source auto parts. However, such tariffs would be equally detrimental to the US as it would disrupt automakers’ production processes and increase their landed costs, leading to reduced competition and potential loss of sales.

Even without such tariffs, it’s fair to say the exclusion of Canada from free trade with the US is likely to have some long-term negative impact on trade between the nations, particularly as it pertains to small and medium-sized enterprises that are unable to absorb the cost impact of tariffs. But trade will persist between the two nations.

This is a critical point to remember as Canadian and US negotiators enter the home stretch of the NAFTA talks. The sky isn’t falling and won’t fall for those truly invested in North American trade.

However, as most stakeholders of trade know all too well, businesses across the continent will all be better off if cooler heads prevail and allow NAFTA to continue its legacy of providing North American businesses with the opportunity to be internationally competitive, rather than burdening them with expensive supply chain reconfigurations.

Cora Di Pietro is vice president of Global Trade Consulting at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

Canada-Mercosur FTA would generate more shipments of export cargo and import cargo in international trade.

Canada Setting Sights on Mercosur is No Coincidence

When the text for the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) was released last week, astute observers were quick to point out that the resurrected trade deal was likely to further enflame what is expected to already be an overheated negotiation session over NAFTA this week.

As widely reported, an analysis of the CPTPP by Global Affairs Canada shows US imports into Canada—and particularly US auto parts—could stand to fall by as much as $3.3 billion. The news couldn’t have come at an untimelier moment given that the seventh round of NAFTA negotiations is taking place this week with a heavy focus on automotive rules of origin. Since balancing trade between the US and its trading partners has been one of Washington’s key objectives, this is likely to come as unwelcome news.

Canadian officials have maintained that the anticipated signing of the CPTPP in March of this year and last year’s ratification of a free trade deal with the Europe Union is simply a manifestation of the current government’s focus on internationalism, not a fallback plan in the event NAFTA is disbanded.

But there was another development in Canada last week and would suggest Canada is hedging its bets. Shortly after signing the CPTPP, Canadian officials are reportedly flying out to Buenos Aires to speak with officials from Mercosur, the four-nation South American trading bloc that includes key markets such as Argentina and Brazil, as well as Paraguay and Uruguay.

In 2016, bilateral trade between Canada and Mercosur totaled only $8.1 billion, a tiny fraction of the $544 billion in bilateral trade between Canada and the US for that same year. By that measurement, a trade pact between Canada and Mercosur would appear to be of limited significance in the context of Canada hedging its bets against a US withdrawal from NAFTA. But look a little deeper and the significance of a Mercosur deal is far more advantageous to Canada than it appears on the surface.

First, since Canada will already have free trade with Chile and Peru through both the CPTPP and bilateral trade deals, a free trade agreement with Mercosur would essentially give Canada tariff-free access to almost all of South America. For multinational corporations with international supply chains that include links in South America, Canada will become a much more attractive investment market. This is particularly true for organizations that will want to complement production-related cost efficiencies in South America with Canada’s pool of high-skilled laborers and technicians who support research and development, design, marketing and other critical aspects of product development.

Second, Mercosur offers Canadian exporters a market of 260 million people. Add that to the market of 500 million to which Canada secured access via the CETA deal with Europe and the 495 million in the CPTPP and suddenly – within the course of the year – Canada will have secured free trade access (in principle) to a combined market more than four times the size of the US.

To be sure, NAFTA or not, the US and Canada are likely always to be each other’s largest trading partners. Geography, business culture and mutually advantageous trade needs have cemented that trade relationship in perpetuity. But without NAFTA, trade becomes more expensive and less advantageous in certain sectors where businesses will likely be looking for alternative markets for sourcing materials and selling their wares.

Finally, as noted by the Canadian Broadcasting Corporation (CBC), access to Mercosur will likely come as a welcome development to the country’s auto parts sector, which will face stiff competition from foreign imports through CPTPP, but can offset that competition by targeting the Mercosur market.

It’s important to note that talks between Canada and Mercosur won’t necessarily result in a free trade agreement. The entities have gone down this road before but stopped short of finalizing an agreement for a variety of reasons. Mercosur has been fraught with instability in recent years. The indefinite suspension of Venezuela from the trade bloc in response to the government’s crackdown on political opposition and accusations of corruption and economic mismanagement in Argentina and Brazil have scared away many investors in recent years. Furthermore, Canada is likely to demand that a free trade agreement with Mercosur include provisions related to progressive policies on labor, environment, indigenous rights and gender equality, similar to those on which Canada insisted within the CPTPP.

For these reasons and others related to impasses over critical trade issues, the EU has been unable to finalize a trade agreement with Mercosur even after almost two decades of negotiation. In other words, even if Canada is pursuing free trade talks with Merocsur, there’s no reason to believe an agreement is likely to be realized in the short term.

But with the fate of NAFTA uncertain and Canada’s participation in the CPTPP blocked only by formalities at this point, there is little question that there is great incentive for America’s northern neighbor to find new hemispheric trade allies.

What isn’t clear is how or if Canada’s pursuit of a deal with Mercosur and its signing onto the CPTPP might affect its trade relationship with the US and/or its NAFTA negotiating position. But given the frankness by which trade matters have been discussed between officials across the 49th parallel, it’s reasonable to assume Canadian policymakers will find out soon enough.

Cora Di Pietro is vice president of Global Trade Consulting at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

NAFTA governs North American shipments of export cargo and import cargo in international trade.

NAFTA’s Chapter 11: Sure to be a Sticking Point in Upcoming Trade Negotiations

On May 18, United States Trade Representative Robert Lighthizer gave Congress the official 90-day notice of the government’s intent to renegotiate the terms of the North American Free Trade Agreement (NAFTA). The notification was the formalization of what the new US administration had been promising since last year’s election campaign. The question on the minds of many is what specific aspects of the agreement are likely to be discussed.

The US has already signaled its own areas of interest for Canada – softwood lumber, dairy and poultry, among others. For Mexico, there’s likely to be a strong focus on procurement provisions and rules-of-origin requirements with an aim of limiting the volume of manufactured goods entering the US via its southern border.

Though it was not specifically called out in Lighthizer’s notice to Congress, one of the most overlooked aspects of NAFTA is one that struck at the heart of the opposition to the Trans-Pacific Partnership and the recently ratified Comprehensive and Economic Trade Agreement (CETA) signed by Canada and the EU, and has been a bone of contention for some years, namely the Investor-State Dispute Settlement.

Opponents of ISDS claim the settlement process lacks transparency and effectively allows private corporations to sue governments for enacting laws and regulations that adversely affect the corporation’s profitability, even if those laws and regulations serve a greater social good. Proponents, however, argue an investor-dispute mechanism must be in place to protect the interests of corporations from harmful government interference in the market, which can oftentimes favor national investors over foreign ones.

According to a recent report by the Canadian Centre for Policy Alternatives, between 1994 and 2015, there were 20 ISDS actions brought against the United States, 35 against Canada and 22 against Mexico, resulting in the payout of $376 million ($172 million from Canada and $204 million from Mexico) in damages, leaving Canada with the distinction of being the most sued country in the developed world. Meanwhile, none of the actions brought against the US have resulted in the US government being forced to dole out damages.

Given this breakdown, the ISDS is likely to be a point of contention among all three parties. US Commerce Secretary Wilbur Ross has been cited as claiming ISDS tribunals are unbalanced. Canada and Mexico, which have been forced to pay out significant penalties to private (mostly US corporations), have their own obvious reasons for wanting to see the ISDS mechanism revisited. Canadian negotiators are likely to point to some of the modifications to the ISDS included in CETA, many of which are found in Canada’s existing investment promotion and protection agreement, as noted in a recent report by the C.D. Howe Institute. These include:

  • Information about claims must be submitted early on in an effort to come to an early and amicable resolution

  • Like NAFTA, there’s a three-year time cap on state exposure to investor claims; however, under CETA, there’s an opportunity for investors to extend this by two years if they have made an effort to resolve their dispute via local courts first before resorting to the ISDS

  • A clause to provide early determinations by the state of disputes that lack merit, so that public funds aren’t spent needlessly on disputes that are unlikely to go anywhere.

  • A limitation on damages so that investors can only be awarded damages incurred, but not punitive damages.

  • Language that limits the possibility that states can be forced to change laws or regulations.

Opponents of the ISDS say the CETA modifications don’t go quite far enough, noting the limited pool of arbitrators still leaves open the possibility of conflict of interest. Others point out the modifications to the ISDS actually create more of an Investment Court System (ICS), but that it may not come into effect for years. That’s because CETA’s current ratification is provisional, meaning that while the vast majority of the agreement may come into effect fairly imminently, certain aspects, like ISDS, won’t come into effect until the deal is ratified by all EU member states.

But some also concede the CETA changes are a step in the right direction and at the very least serve as a foundation for discussion of potential ISDS reforms. Indeed, the very existence of NAFTA’s Chapter 11 in which the ISDS mechanism is contained, is one of the key aspects of the agreement that critics call out as outdated and in need of either reform or elimination.

The question, however, is what would replace Chapter 11, if anything? Investors and activist groups will be keeping a watchful eye over negotiations and making every effort to influence discussions over any investor-dispute mechanism in their favor.

Canadian and Mexican negotiators will likely be looking for ways to satisfy the interests of the American investment community without compromising their sovereignty while also finding the means to curtail the volume of actions taken against them.

Whatever the outcome, it is likely to have an impact on the degree to which industries from each nation make investments in the others, affecting economic growth, employment, innovation and a host of other socioeconomic factors.

While the investor-state dispute mechanism may not stir up the same level of emotional reaction as labor rights, industry protectionism and offshoring, it will have a profound effect on the degree to which a new NAFTA will be leveraged by industry players. Those with a vested interest in North American trade will want to keep a watchful eye.

Cora Di Pietro is vice president of Global Trade Consulting at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

Shifting patterns may be developing in US-Canada shipments of export cargo and import cargo in international trade.

Trade Winds: A Four-Part Series on Shifting Attitudes Toward Trade Agreements

A potentially significant shift in Canadian and U.S. trade postures over the next 12 to 24 months is taking shape. Canadian businesses, which have traditionally trailed their American counterparts with respect to trade activity and the use of free trade agreements are going to be ramping up their international efforts while U.S. trade activity is expected to level off.

The shift in Canadian trade patterns that could impact trade relations with the United States and sourcing options for U.S. businesses.

According to recent research by Livingston International, the number of businesses in Canada that currently use two FTAs is expected to go from 14 percent this year to 23 percent next year — a growth rate of 65 percent.

Those numbers are noteworthy given that the number of FTAs being used by U.S. businesses isn’t expected to change during the same period. To be fair, U.S. businesses are already far more exploratory and adventurous with respect to their trade activity and the use of FTAs. According to the research, U.S. businesses are more than three times more likely to use three or more FTAs than those in Canada. Just 45 percent of U.S. businesses use only one FTA, versus 55 percent in Canada.

But the expected surge in Canadian FTA participation will change those numbers and points to an interesting shift in Canadian trade patterns that could affect trade relations with the U.S. Not surprisingly, of those businesses on both sides of the Canada-U.S. border that use only one FTA, that FTA is NAFTA. However, with the anticipated increase in multi-FTA participation in Canada, many businesses will be setting their sights on the European and Korean markets. In fact, Canadian trade with Europe is expected to rise more than 60 percent and trade with Korea more than 40 percent.

Interestingly, the data were gathered before the recent signing of the Comprehensive Economic and Trade Agreement (CETA), which removes tariffs on 98 percent of industrial goods being traded between Canada and the European Union. The signing of CETA may draw interest from an even higher number of businesses than originally anticipated when the research was conducted. What will be telling, however, is whether or not the climbing numbers of Canadian businesses exploring the EU market will be sustained after the UK officially leaves the EU and will no longer be accessible to Canadian traders through CETA.

The anticipated increase in trade between Canada and Korea is also revealing. An FTA already exists between the two countries and at least some Canadian businesses will use Korea as a foot in the door to the burgeoning Asian consumer market. The anticipated growth of trade with Korea could be a harbinger of broader trade with Asian countries in general should Canada sign the Trans-Pacific Partnership (TPP), widely expected to be pushed through before the end of the year.

All this means Canadian businesses are becoming more inclined to look beyond their southern neighbor as a source of business. There’s no question that at least part of this newfound appreciation for global markets is being driven by a more favorable exchange rate for the Canadian dollar, which until last year hovered near par with the greenback, limiting the export potential of Canadian goods.

But it’s also reasonable to assume that some of the protectionist sentiment emerging from the recent U.S. election and promises by president-elect Donald Trump to renegotiate NAFTA have some Canadian businesses believing it may no longer be feasible to put all their eggs in one American basket.

If the net result is only an expansion of Canadian trade activity, the effect on U.S. businesses will be negligible. However, should Canadian businesses begin exchanging U.S. trade opportunities for ones in Europe and Asia, it could have a profound impact on the Canada-U.S. trade relationship and, more importantly, the ability of U.S. businesses to source cheaper goods (made even more cost effective via the more favorable exchange rate) from Canadian suppliers.

This is should be of particular concern for those one in four U.S. global businesses who rely on FTAs to source inventory at a lower cost. American businesses that have taken advantage of NAFTA and that rely on consistent trade with Canadian companies will want to consult with trade experts on what might serve as a viable contingency plan for their supply chains in the event the Can-Am trade relationship changes.

Between the recent signing of CETA, the anticipated Brexit, the signing of the TPP, and the potential renegotiation of NAFTA, the next two years are expected to be quite eventful on the trade front. It is encouraging to see Canadian businesses assessing the changing trade landscape and making plans to adjust their own practices. What remains unclear, however, is the degree to which their U.S. counterparts will follow suit or retreat into isolationism.

Cora Di Pietro is the vice president of consulting at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.