The spectre of NAFTA being cancelled is on many people’s minds considering that the election of President Donald Trump. Washington has got out of the TPP and wants an even better deal for your U.S. from the NAFTA agreement. The recent possible tariffs coming from the Trump administration can also be heightening trade concerns. Is cancelling NAFTA a bad thing for Canada? There are 2 solutions to examine this question.
The Current State
The first approach is looking at how things currently are and what is very likely to happen making use of this assumption. Canada could be the U.S.’s second largest trading partner and also the U.S. is Canada’s largest trading partner by way of a large margin. The U.S. is Canada’s closest trading partner by place of business. Much with the infrastructure which is already available caters to shipping goods throughout the Canada-U.S. border seamlessly – bridges, railways, sea ports, shared production facilities etc. The culture with the U.S. is comparable enough to Canada that doing trade is pretty easy. There are no language barriers, religion barriers, or culture barriers compared to other countries. Our currencies are closely aligned, making trade easier with regard to financing, relation to its payment and foreign currency exchange. It is very easy to get U.S. dollars in Canada. Comparing this towards the Japanese Yen shows the contrast. Lastly, the assumption could be that the U.S. will protect Canada militarily so Canada can target producing other goods.
Using this assumption, if NAFTA is cancelled, Canada can be a big loser with regard to trade. The fears are that Canada’s goods will never be exported and economic activity are affected. We do not have other trading partners as large or physically nearby as the U.S. The infrastructure and financing advantages also will not exist with any countries. Even Mexico who’s part of NAFTA features a different currency, language, culture and priorities compared to U.S. with regards to trade. Cancelling NAFTA seems as if a disaster.
What include the disadvantages of NAFTA or trade deals on the whole? First, trade deals encourage specialization of industries from the lowest cost / highest benefit output of goods and services. All other production is reduced or ceased. If you want to create a new industry, you’ll have a small possibility of success because your trading partners may dominate a or limit you against competing. If this is not true, chances are you’ll develop a on a person’s terms. Starting a company without free reign to experiment usually won’t succeed because experimentation is important to optimize industry demand, efficiency and wish for a given product. These limitations develop a volatile economy based on a number of sectors. In Canada, therefore energy, commodities, banking and property. The second concern is negotiating power. Trade deals limit what you might negotiate following your deal is produced, unless the full deal is re-negotiated, that is what is happening today with NAFTA. This limits diversification of trading partners and new opportunities which can be present. Sometimes even inside an established industry, different market problems that would normally be studied advantage of wouldn’t be available because in the terms in the trade in the deal. As an example, the buying price of oil is fixed at $50 per barrel between two countries. The price of oil rises to $100 per barrel on world markets, nevertheless the seller will never benefit from this since they will be selling the oil at $50. Should the price drop to $20, the owner would benefit, even so the question of “how often can this happen which is it worthwhile?” will probably come up. The last disadvantage could be the negotiation itself. If you are negotiating which has a much bigger, stronger trading partner, you’ll probably need them over they need you. This means that they will argue for better relation to its trade if you want to increase the risk for deal, you will need to sacrifice more than you could realize. In the way it is of Canada as well as the U.S., the U.S. incorporates a more developed economy than Canada, and many more influence on the entire world stage. If the U.S. really wants to dump Canada and do business with someone else, they could do it easier than Canada can to the U.S. This gives the U.S. more negotiating options than Canada – at the very least at the present time. The U.S. can provide more products on the market, more selections for trade and much more customized terms. Let’s say that Canada visited a trade negotiation and said “I will offer you technology expertise.” Would that be possible? Not likely, but Canada may offer mining expertise. The U.S. may offer both.
The Opportunity
The second approach is in the event that cancelling NAFTA is usually an opportunity, and changes can be produced to benefit Canada more so compared to the current agreement. Why? Trade could be opened up to every single country inside the world with open terms. Since the competitors are much greater if all countries are for sale to trade, the opportunities could be greater. The flip side is always that more competition might make it harder to trade on an advantage as a result of cheaper labour or better that might be available in other countries.
Cancelling NAFTA will make Canada more independent because we simply cannot rely on a certain trading partner to get our goods. This can create more resourcefulness and entrepreneurialism among Canadians. When people must find a way to survive, there exists more effort expended. This effort can create more diversification among industries since we not can afford to concentrate on certain sectors.
This scenario has begun to play out with Canada negotiating more handles Europe and Asia. Canadian firms have global expertise in certain sectors giving them a plus when creating relation to its trade.