Editor's Note: Ian Lee is an associate professor and former MBA director at the Sprott School of Business.
The North American Free Trade Agreement could be replaced by a bilateral pact between only Canada and the U.S. under the presidency of Donald Trump, two CIBC economists told their clients immediately after the election.
During his campaign, Trump continually promised to “terminate” NAFTA, calling it the worst trade deal in the history of the United States. He blamed the 22-year-old pact for “gutting” America’s auto industry.
In Canada, Unifor, the union that represents 23,500 auto workers in Ontario alone, also blames NAFTA for massive job loss in the auto sector.
Now, Avery Shenfeld and Royce Mendes, two economists at Canada's fifth largest bank, say an agreement exclusive to Canada and the United States could change that, if Washington and the American people were willing.
“Mr. Trump’s concerns about globalization are mostly focused on low-cost producers like China and Mexico, but tearing up NAFTA would leave Canada in a vulnerable position,” the economists at Canada's fi wrote.
“Canada and the U.S. could revert to a bilateral free trade arrangement that excludes Mexico. That might help Canada reap market share stateside, but there are also risks that protectionist sentiments could extend to restrictions on some Canadian shipments to the U.S., given the political tide in that direction.”
Not a 'done deal'
Ian Lee, associate professor at the Sprott School of Business at Carleton University in Ottawa said “there’s a possibility” Canada and the U.S. could strike a deal under Trump.
“For the foreseeable future, multilateral trade agreements are dead. We now know the TPP is dead because Donald Trump said so. So, we’re back down to the most basic trade agreement, which is a bilateral trade agreement between two countries,” Lee said. “But I don’t want to overstate it and say it’s a done deal.”
That’s because Canadian politicians haven’t done enough to make Washington realize how important Canada is and how little of a threat it presents, Lee said.
He said politicians should immediately start developing “a very deep relationship with every Congressman” and “even deeper relationships with the governors of every border state.”
“We can set the groundwork for an agreement, sort of shaped like the original free trade agreement with the U.S. in 1988,” Lee said.
Prior to the 1988 free trade deal and the signing of NAFTA in 1994, Canada also benefited from the Auto Pact, which was signed in 1965. The NAFTA deal eventually suppressed the Auto Pact, which was officially abolished in 2001 after the World Trade Organization declared it illegal.
No government pitch
So far, no government officials on either side of the border have publicly called for any new bilateral agreement between Canada and the United States.
However, Canada’s Ambassador in Washington said NAFTA could be reopened.
"We're ready to come to the table," David MacNaughton told the Canadian Press on a conference call Wednesday.
He said that while Canada believes the deal has benefited all three countries, "everything can be improved,” the news agency said.
He said that while Canada believes the deal has benefited all three countries, "everything can be improved," the Canadian Press reported.
Flavio Volpe, head of the Canadian Automotive Parts Manufacturers’ Association, told Automotive News Canada that, at the very least, a revised version NAFTA could provide benefits for Ontario. However, the province would need help from Rust Belt states like Michigan, Ohio, Indiana and Pennsylvania, all of which voted for Trump.
“If the Great Lakes states and the Midwest States can explain to Washington that Ontario is essentially a part of that region, then it’s good for Ontario,” Volpe said. “But it will come down to state-to-state, province-to-state co-support and the articulation of how integrated we are.”
For example, 30 per cent of the parts used at the more than 10 auto assembly plants in Michigan come from Ontario, Volpe estimates.
In an effort to expedite trade, a new Cnd $3-billion bridge is planned to connect Windsor, Ont., with Detroit. It’s slated to open in 2020, although it’s behind schedule. Right now, a quarter of Canada-U.S. trade travels between the two cities across the aging Ambassador Bridge.
Mexico 'No. 1 loser'
Lee called Mexico “the No. 1 loser without any doubt.”
“China is very, very big. China has nuclear bombs. China has huge holdings in the U.S. Treasury. China has a lot of power to retaliate, kick and hurt the U.S. For those reasons, cooler heads will prevail. Trump won’t risk taking on a trade war with China,” he said. “Mexico by contrast is nice and small and vulnerable.”
Lee called Mexico a “two-for,” which is the source of illegal immigration and a country viewed to be taking U.S. jobs.
“So Mexico is certainly in the crosshairs,” Lee said. “On the trade file, the U.S. is not identifying Canada as the source of their problem. We’ve been shedding auto plants like crazy, so it’s kind of hard to make that argument anyway.”
Unifor President Jerry Dias said the industry has lost 50,000 direct auto jobs since 2000. He said it’s a direct result of NAFTA.
“They’re not closing anything in Mexico. Renegotiating NAFTA would be quite helpful,” Dias said. “The reality is, anyone who thinks they can just blow up the auto industry like that, it’s just not that easy. It’s the most integrated industry in the world. You have assemblers with operations that feed all three countries. It’s just not that easy.”