Blog Posts

The end of NAFTA: What would it mean?

 
The matter of trade was front and centre in Trump’s 2016 presidential campaign. Since gaining office, he has repeatedly threatened to terminate NAFTA if Canada and Mexico don’t go along with the major changes he’s after – changes that, naturally, favour the U.S. and align with his protectionist ideals.
 
The four rounds of NAFTA talks thus far have been… strained. The U.S. is taking a tough stand and Canadian and Mexican officials are concerned about unreasonable demands. Even the U.S. commerce secretary acknowledged that their side is seeking concessions from Canada and Mexico without giving up anything in return.
 
So, what would a post-NAFTA trade environment look like? Trump’s top trade negotiator, Robert Lighthizer, says they don’t know because they haven’t even contemplated that scenario. The U.S. is focussed solely on getting a better deal, not on imagining what killing the existing deal would mean.
 
Not so good for predictability and peace of mind, right?
 
Unfortunately, the future of Canada-U.S. trade remains unclear. But, according to the business community, political analysts and others, the possible repercussions of killing NAFTA may well include some or all of the following:The end of NAFTA
  • Significant job losses by all three countries – likely more so for the U.S. and Canada

  • Reinstatement of tariffs on most goods that have been traded tariff-free under NAFTA, which could mean...

    • Reinstatement of the Canada-US free trade deal that preceded NAFTA and

    • for other trading partners, or if the former deal doesn’t kick in, WTO tariffs will be applied

  • Canada favouring European nations, with whom we have a newly-minted free trade agreement (CETA)

  • Contracting of Canada’s economy (by 2.5% in the longer term, with a larger shock in the short term, according to CTV news)

  • Companies becoming more conservative in their business planning, with impacts all along supply chains

  • A possibility of lawsuits and court injunctions by corporations who rely on the certainty of NAFTA for their survival

  • Longer term damage to well-established business relationships, collective trading power and global competitiveness of the three parties

The NAFTA trading relationship is worth half of Canada's economy and is of vital importance to all sides. At the same time, most trade experts agree that a bad deal – with Canada and Mexico caving to U.S. protectionist demands – would be worse than no deal.
 
Still, billions of dollars and millions of jobs hang in the balance – and for now, we wait and see.
 
In the meantime, stay informed by checking our “What’s happening with NAFTA” blog. Speak with our Free Trade consultants now to get more information on NAFTA and to discuss how any changes could affect you.
 
Contact us today!
 
Information provided by: NAFTA & Free Trade Dept. - Cole International