Canada Needs to Prepare for Negotiations on NAFTA

The North American Free Trade Agreement (NAFTA), came into effect on January 1, 1994, creating the largest free trade region in the world. It was designed to generate economic growth and help raise the standard of living for the people of all three member countries.

“By any measure the NAFTA has been a success by serving as a basis to grow both trilateral and bilateral North American relationships and the results speak for themselves. This integration helps maximize our capabilities and make our economies more innovative and competitive. In 1993, trilateral trade within the North American region was over US$288 billion. In 2015, our total trilateral merchandise trade amounted to over US$ 1.0 trillion.” (Source: Government of Canada Global Affairs Canada website). This is a more than threefold increase since 1993.

During the recent US election, Bernie Sanders and Donald Trump frequently spoke about the need to renegotiate NAFTA. They commonly highlighted the impact that “bad trade deals” as they were framed, had on American industry. As the election campaign unfolded, Hillary Clinton fell into line with her opponents on this issue. While the subject of renegotiating NAFTA has come up before, this time will likely be different. Here’s why.

Donald Trump has already stated that one of his major priorities is to create jobs in America. He campaigned with the slogan “Make America Great Again.” A big part of making America great again is bringing back jobs that were lost to other countries. This message resonated strongly with working class people living in “rust belt” states. In fact, the race for the Presidency was decided in Michigan, Ohio, Pennsylvania and Wisconsin. These states turned their backs on the Democrats and voted for Donald Trump. To maintain the support of working class Americans in these states, Mr. Trump will have to demonstrate that he is trying to bring back jobs to these states. To better understand the challenges of people living in cities in this area, who have lost their jobs, I encourage everyone to read Hillbilly Elegy by J.D. Vance (see my blog on the book http://www.dantranscon.com/index.php/blog?view=entry&id=253 ).

This is a region that contained coal mines, steel mills and many automotive manufacturing plants that are no longer in operation. During the election, Donald Trump frequently made some pointed comments about how many good jobs in the auto industry, and other industries, have migrated to Mexico. Of course, the province of Ontario also has thousands of jobs in this sector. Since the President-elect’s mission will be “America First,” it is likely that he will look carefully at the jobs located in Ontario that can be brought back to the “rust belt” and possibly other states. His priority will not be protecting Canadian jobs at the expense of American jobs.

Canadians need to begin thinking not only about jobs in automotive plants but also jobs in the automotive supply chain plants (i.e. companies that supply tires, molded plastic products, metal stampings, glass products, engines, brakes and so many other parts). Of course, any changes to the Canadian auto industry or any other industry that could be affected by changes to NAFTA, would have direct impacts on the Canadian Transportation industry.

It is common for politicians to make promises during an election campaign and then change or forget them afterward. It is very likely that Mr. Trump will launch a major infrastructure initiative to create jobs by rebuilding airports, bridges and highways. However, these types of jobs are temporary. It is also likely that Mr. Trump and his team will be looking for some “quick wins” in industries where factories can be re-opened and jobs can be repatriated to the United States (i.e. US-based automotive or automotive supply plants that are underutilized or sitting empty). Bringing American blue collar workers back to work would provide some high profile wins as he looks ahead to the election in 2020.

The bottom line is that the Canadian and Ontario governments and industry stakeholders should begin planning in earnest for the upcoming NAFTA negotiations that will likely take place early in 2017. Canada is a country that is very dependent on trade, particularly with the United States. Canadian leaders should begin looking at the potential trade-offs so that they protect Canadian jobs and the economy from potential shocks that may not be too far down the road.

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