What Will Canada Do Without NAFTA?

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Prime Minister of Canada Justin Trudeau departs after a press conference at the Canadian Embassy, in Washington, DC. Earlier in the day, Prime Minister Trudeau met with President Donald Trump, where they discussed the North American Free Trade Agreement.

The North American Free Trade Agreement, or NAFTA, went into effect on January 1, 1994, forming a trade bloc between the U.S., Canada, and Mexico in an effort to promote North American trade. However, under the current presidential administration, NAFTA has been met with substantial opposition, President Trump stating in his 2016 campaign platform, “NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.” The impacts of a U.S. withdrawal from NAFTA holds serious consequences for all parties involved, namely Canada.

    The U.S.’s present effort to reform the current trade partnership holds particular significance for Canada-U.S. relations. The 1994 passage of NAFTA superseded the Canada–United States Free Trade Agreement (CUSFTA), which had existed between the two countries since its ratification in 1988. One of the first of its kind, it removed tariffs on imports and exports between the two countries and attempted to regulate trade. In the original legislation, it claimed to be a “win-win agreement,” boasting economic benefits for both countries. Despite the initial promise of the trade deal, it faced heavy opposition with both Canadian political parties, who were concerned about the possible economic ramifications. U.S. opposition was, however, much less prevalent, with polls showing that 40% of Americans were not even aware of the bill’s passage. While CUSFTA remained a controversial bill, it was soon overshadowed by the passage of NAFTA

    In addition to the inclusion of Mexico, NAFTA also sought to deal with some of CUSFTA’S shortcomings. The most vocal opponent of this trade deal was the Liberal Party of Canada, who felt that the deal was removing Canada’s economic sovereignty. Despite some Canadian opposition to the plan, President Bill Clinton passed the bill through the Senate in 1993. He also included two stipends, the North American Agreement on Labor Cooperation and the North American Agreement on Environmental Cooperation. These stipends were included to mitigate the economic and social impact that trilateral trade might cause.

Since President Trump’s announcement to renegotiate the deal, the three neighboring nations have held a series of talks over the past few weeks, although negotiations seem to have hit a standstill. Much of the renegotiations are focused on the role of Mexico in the trade agreement. Canada, alongside Mexico, continues to maintain that they are willing to negotiate with President Trump, although they have rejected the recently proposed trade deals put forth. John Weekes, the original Canadian negotiator for NAFTA, stated that “it wouldn’t be the end of the world” if the renegotiations fell through. Other experts, however, predict a much more palpable impact, with an anticipated 4.2% rise in tariffs on Canadian goods, compared to a 3.5% increase on U.S. goods. A significant consideration for Canada’s role in NAFTA is the Automotive Products Trade Agreement, or Auto Pact. This trade agreement, ratified by both the U.S. and Canada in 1965, removed tariffs on automotive goods exchanged between the two countries. As a result, automotive companies have strategically placed plants throughout the U.S. and Canada to take advantage of the reduced tariffs. As the third largest automotive exporter to the U.S., many Canadians worry that withdrawing from NAFTA, and by extension the Auto Pact, will negatively affect the automotive industry. According to the Canadian government, over half a million people are employed in the Canadian automotive industry, and with a decrease in automotive exports, experts fear a decline in employment.

Subsequent negotiations are planned to take place in Mexico City on November 17th, and further talks over NAFTA have been pushed to January of 2018. Nonetheless, U.S. withdrawal from the trade deal is extremely possible. Questions remain on how Canada’s economy will fare without NAFTA, and whether or not the Canadian government can make modifications to withstand such an economic change.