U.S. President Donald Trump’s threats to renegotiate the North American Free Trade Agreement are coming to fruition.
The United States officially indicated its intention to renegotiate the trade deal on Wednesday, marking the start of a 90-day consultation window before formal talks get underway.
During the U.S. presidential election, Trump called the trade deal “a disaster,” and Thursday, U.S. Commerce Secretary Wilbur Ross said the Trump administration was putting the U.S. Congress, as well as trading partners Canada and Mexico, on notice that “free and fair” trade is going to be the new standard for the U.S.
What a renegotiated NAFTA will look like and how it will affect Canada is anybody’s guess, but the dairy and softwood lumber industries are two key areas of concern on this side of the border.
NAFTA, which took effect in 1994, was a three-country accord negotiated by Canada, Mexico and the United States with an aim to eliminate most tariffs on products traded among the three countries.
The Council on Foreign Relations website indicates that NAFTA “fundamentally reshaped North American economic relations, driving an unprecedented integration between Canada and the United States’ developed economies and Mexico, a developing country.” The agreement also encouraged a more than tripling of regional trade and cross-border investment between the three countries also grew significantly.”
Trump has blamed NAFTA for a number of the U.S.’s economic problems, but it’s debatable whether the trade deal is really at fault in all those cases. According to the website Investopedia, “While thousands of U.S. auto workers undoubtedly lost their jobs as a result of NAFTA, they might have fared worse without it. By integrating supply chains across North America, keeping a significant share of production in the U.S. became an option for car makers. Otherwise they may have been unable to compete with Asian rivals, causing even more jobs to depart.”
Regarding NAFTA’s effect on Canada, Investopedia notes, “Canada experienced a more modest increase in trade with the U.S. than Mexico did as a result of NAFTA, at an inflation-adjusted 63.5 per cent (Canada-Mexico trade remains negligible). Unlike Mexico, it does not enjoy a trade surplus with the U.S.; while it sells more goods to the U.S. than it buys, a sizable services trade deficit with its southern neighbour brings the overall balance to -$11.9 billion in 2015.”
The U.S. can be expected to play hardball when the NAFTA negotiations begin, but its negotiators shouldn’t expect Canada and Mexico to accept a deal that is counterproductive to their own economies. If the U.S.’s new standard is “fair,” then it must be fair for all involved.