UBC Professor explains how NAFTA reforms could impact Canada

Throughout his election campaign, Donald Trump often spoke about reforming the North American Free Trade Agreement (NAFTA), which outlines rules for international trade and investment between Canada, the United States, and Mexico.

However, how important is NAFTA to Canada, and how would Canadians be impacted if President Trump goes ahead with reforming it?

According to Carey Doberstein, a Political Science professor at the University of British Columbia’s Okanagan campus, the agreement is important for a number of reasons.

“NAFTA is very important to the Canadian economy, for several reasons, chief among them is that it guarantees U.S. market access for many of our exports,” began Doberstein. “ NAFTA has also facilitated complex supply chains back and forth across the border for advanced manufactured goods. An oft-cited example is that in auto manufacturing in North America, a car goes back and forth across the border between various firms up to ten times before it is completely built. A tariff-free relationship in this context allows for increases in efficiency and productivity, which can result in lower prices for goods.”

When asked whether Canadians should be worried about the prospect of NAFTA being reformed, Doberstein replied that it would depend on what the changes are.

“Any agreement can be improved, so renegotiating or expanding NAFTA is not an inherently problematic idea, but it depends entirely on what direction the new President wishes to renegotiate the deal,” said Doberstein. “If it is to go back to adding tariffs to traded goods or using more subsidies—both designed to favor U.S. firms, then that is completely contrary to the spirit of NAFTA and workers and consumers in both countries would be worse off if this path is pursued.”

“If it is to modernize NAFTA with more attention to services, intellectual property, and addressing supply management, then it is not a bad idea. Yet the new President has not expressed interest in the latter, but has only really spoken about re-adding tariffs and “Buy American” provisions, so that is cause for concern. “

Despite admitting that there could be cause for concern if the Trump Administration attempts to re-implement trade barriers, Doberstein doesn’t expect any major changes without a fight from American commercial interests and Canadian diplomats.

“NAFTA may be modified on the margins, but I do not expect major changes to it,” began Doberstein. “American commercial interests and Canadian diplomats will exert extraordinary pressure on the President to rethink these poorly conceived plans, which are essentially mercantilist views of the world which have largely been discredited. Recall that both Bill Clinton and Barack Obama both argued in their first campaigns that they wanted to renegotiate NAFTA, and neither followed through in part because the alternatives to NAFTA are not terribly compelling economic strategies.”

Ultimately, it’s too early to determine exactly how the Trump Administration will go about reforming the agreement. But in the meantime, it’s useful to know how significant NAFTA currently is for the Canadian economy as well as what the implications could be if it were reformed.