April 6, 2018
Canadian and U.S. Trade Relations (Trump May Have ‘No Idea,’ But We Know What’s Up)
All right, we all remember details of NAFTA from Grade 7 history (sort of), but how about a quick refresher? The North American Free Trade Agreement was introduced in the 1990s as a way to open borders for manufacturing and trade. This continental agreement was the first of its kind, allowing for significantly reduced (or eliminated) regulations when doing business internationally between Canada, Mexico, and the United States. So basically, if Vanilla Ice wanted to sell a rollerblade-friendly Discman to his buddies up in Saskatoon, but the only place to build them was in Guadalajara, he could now do it without paying extra duty. (Man, the ‘90s were lit.)
NAFTA has been running strong since then, but was, and continues to be met with mixed reviews. Many have continued praising its open border approach to business, allowing for shared resources of three countries. This is why we saw so many “Made in Mexico” tags on our clothes growing up, and why so many of our favourite TV shows and movies were actually set in Canada. Others blamed NAFTA in part for the crash of the American manufacturing sector and the outsourcing of jobs to countries with less expensive labour. Donald Trump, citing NAFTA as a reason why America was broken, is fighting to bring jobs back to the U.S. by completely rewriting the act.
We’re eight months into the North American Free Trade Agreement negotiations and a pleasing resolution for all involved is looking a little more likely (than say it was two weeks ago). It all started when President Trump campaigned on promises to renegotiate NAFTA with Canada and Mexico, with the intention of securing industries, jobs and commerce within the U.S. Since the 1994 agreement came into effect, Mexico has seen a huge boom in certain industries, with many American assembly and production plants moving south of the border (taking jobs away from Americans). Trump also claimed (via Twitter) that Mexico has a “$71 billion dollar trade surplus with the U.S.” which would more than cover the cost of his estimated $20 billion wall. (Yes, literally every negotiation with Trump hits a wall, the border wall to be precise.) And while this all started over Mexico, Canada hasn’t escaped Trump’s threats either.
What This Could Mean for Canada
It’s no secret that our neighbour to the south is the largest purchaser of Canadian goods and services. A stricter and more expensive NAFTA agreement would hurt Canada’s overall GDP. Currently, Canada is the 12th largest export economy in the world. In 2016 our home and native land sold more than $387 billion dollars’ worth of goods to the rest of the world. This included things like cars, natural resources, and Ryan Gosling (swoon!). Of that $387 billion, the U.S. gobbled up $266 billion. That’s 68% of our total sales! Our second largest customer is China with only $27.3 billion. Basically, if maple syrup and poutine become too expensive as a result of the new deal and we lost our biggest customer…we probably wouldn’t be able to afford the healthcare required to heal our broken hearts.
Trump, Trudeau and Trade
So Trump is a bully, but what is our fearless leader doing about it? “We’re standing up for ourselves. But, we know there’s a win-win-win we can get to,” Trudeau told one employee at the Algoma steel facility during a PR event a few weeks go.
At another interview he said, “We know we can work towards a good deal. But we also know that we will not be pushed into accepting any old deal, and no deal might very well be better for Canada than a bad deal. And being firm on that is, I think, what Canadians expect of me.”
One way or another we are going to see significant change in the next few months. It will impact most of our economy, and the needle could move in either direction.
Here’s to you, PM, our financial future depends on you.
For a quick and clever overview of how and why NAFTA came to be, watch this.
For a deeper dive into Canada’s trade relations, visit atlas.media.mit.edu.