w  rd 2 the woss

1994 was an historic year for the countries in North America. It marked the creation of one of the world's largest free trade zones and laid the foundations for strong economic growth and rising prosperity for Canada, the United States, and Mexico. However, at this very moment that partnership is in jeopardy.

 

    There has been a call for renegotiation of the North American Free Trade Agreement (NAFTA) by U.S president Donald Trump. In his first 100 days report he stated a wish to either renegotiate or terminate the deal that has lasted for a quarter of the last century. Luckily for Canada, Trump has been persuaded into a renegotiation rather than a termination of this vital agreement.

 

    Canada and Mexico are ready to engage the United States on one of its most contentious demands. This demand is one so outrageous that initially the other two countries could not fathom considering the proposal. The fact that they are now ready for talks, shows just how important this agreement is, and offers a sliver of hope that the deal may still pull through if all parties remain flexible which is unlikely with Trump being one of the Party members.

 

    The controversial U.S idea: a five year sunset clause on NAFTA. Also called a termination clause, the proposal would end NAFTA after five years unless all three countries agree to extend it. This has been widely rejected by everyone but the Trump administration as a recipe for uncertainty. The point of the free trade agreement is to boost investor confidence, promoting increased investment into the economy. With the sunset clause, the economic environment would be full of uncertainty, stagnating investment, and by extension economic growth.

 

    As the latest talks in Mexico suggest there is a willingness to change this from a termination clause to a review clause, where the deal is that every five years the three countries review the terms of agreement without the threat of termination looming over their heads.

 

    Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland have frequently spoken about the value of reviewing trade agreements, but have not publicly discussed the idea of embedding such a practice in the formal clause of NAFTA.

 

The termination of NAFTA could be catastrophic for Canada. After 23 years of trade the economies of the three countries are deeply interwoven.

 

In 2016, Canada exported $454 billion to the U.S. This comprises about three-quarters of all outward trade from Canada according to Export Development Canada. In addition, Canadian companies currently have roughly $475 billion worth of cross-border investment in the U.S., and NAFTA supports about 3.4 million Canadian jobs by way of trade and investments with the U.S. Although technically Mexico and Canada would still be bound by NAFTA without the United States, Canada’s exports to Mexico amount to relatively small portion at $8.8 billion.

 

As is to be expected, Canada would be in trouble. Prices for Canadian consumers would increase on almost every conceivable commodity, from cars to groceries. Tens of thousands of jobs would be in jeopardy, stock prices along with the loonie would go into a tailspin, and the Liberals in Ottawa would be stuck in a very deep hole, one which even the most experienced experts would have trouble digging Canada out of.

 

“Any prime minister of Canada—doesn’t matter what political party—has two things in their job description: don’t lose Quebec on your watch and don’t mess up the relationship with the United States,” says Lee, the Carleton University professor. “If you mess up either one of those two things, you lose your job.”

 

Needless to say if NAFTA is terminated, Trudeau’s government isn’t far behind. This isn’t to say that Canada as a country will fail. An absence of a Free Trade Agreement between the two countries does not mean there will be no trade. The U.S is likely to remain Canada’s biggest trading partner. The big question is how much will cross-border trade drop and how big will the tariffs be that are applied to the foreign goods and services grow?

 

Economists, however, are finding reasons to remain optimistic. If Washington severs NAFTA then Canada will need to try something new, taking globalization to the next level. By looking beyond North America, Ottawa could find trade deals that work even better than NAFTA. What it would definitely do, is lessen its dependence on Washington, and distance itself from more harm that the Trump and future presidents may have on Canada.

 

Even still, there are those with first hand experience negotiating such deals that remain skeptical that there is any hope, or that there is any good future beyond the horizon for Canada without the free trade that NAFTA offers.

 

“I also believe that President Trump’s threat to terminate NAFTA is not a bluff,” wrote former prime minister Stephen Harper in a memo that was leaked last month. “I believe this threat is real.” With this statement many begin to take notice of the serious repercussions this could have on Canada’s economy, and with that, Canada’s future.