The Impacts of a Potential NAFTA Termination

 

U.S. president Donald Trump made a promise during his 2016 campaign to pull the U.S. out of the North American Free Trade Agreement (NAFTA). He’s called it the worst trade deal ever signed by the U.S. and a “disaster”. Let’s discuss some of the impacts a cancellation of NAFTA would have on the U.S. and Canada.

Impact on Economy

The termination of NAFTA would certainly disrupt the Canadian economy, but the exact effects will be unclear until a replacement for the trade deal is created. A bilateral trade deal between just Canada and the U.S. could replace NAFTA, but that wouldn’t necessarily solve problems.

If the U.S. sticks to regulations set by the World Trade Organization (WTO), RBC predicts that the Canadian GDP could drop by a total of 1% in up to 10 years.

Regulations from the WTO, which the U.S. has previously agreed to, would set a trade tariff of 3.5% between the two countries, replacing the current 0%. However, with the unpredictable nature of Trump’s presidency, it is possible that the U.S. may not abide by the WTO tariff rate and would instead put a higher tariff in place. This higher tariff would increase prices on everyday products in the short term and potentially spur the relocation of North American manufacturers.

Additionally, the Canadian dollar will suffer should NAFTA be revoked. After reports circulated about the Trump administration pulling the U.S. out of NAFTA, the Canadian dollar fell 0.62% at the beginning of January. We can therefore expect further depreciation of the loonie versus the greenback if NAFTA falls apart, making U.S. goods more expensive for Canadians.

Impact on Immigration

In addition to potential price increases on everyday products and the relocation of North American manufacturers, the widely sought-after TN visa will be no more if NAFTA falls apart.

Without the TN visa, Canadian citizens who could typically obtain U.S. job offers and relocate with ease will instead have to investigate other visa options to pursue employment in the U.S.

Unfortunately, most of the other employment-related immigration routes require a lot more work for U.S. employers, who may have to sponsor foreign employees and work with additional parties such as the Department of Labor to obtain wage determinations and/or labor certifications. As a result, both Canadian professionals and U.S. employers may be deterred from engaging in this process.

For more information on how a change in NAFTA terms could affect your situation, please do not hesitate to contact one of our experts at MCA Cross Border Advisors Inc.

 

Request a Consultation

 

——–

MCA Cross Border Advisors, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.