During the presidential campaign, Trump called NAFTA “the worse trade deal ever signed” and promised to tear up  the agreement, or, at least renegotiate terms. As anti-free trade populism swept the United States, many politicians jumped on that band wagon. Naturally, Canada, as the United States’ most important trading partner, became alarmed at the prospects of an assault on NAFTA fearing serious consequences for major Canadian industries.

To appreciate how misguided the anti-NAFTA position is with regard to Canada, the facts point to a quite different picture regarding who benefits from the agreement. Consider the following for 2015 [1]:

• Bilateral balance of trade. The United States had a  goods export surplus of $15 billion  and a  services export surplus of $ 27 billion;
• Compared to Pre-NAFTA (1993). U.S. goods exports to Canada are up 179 per cent and service exports are up 237 per cent;

When we look a specific trade sectors, the argument that the United States has suffered under NAFTA falls apart completely. Again, consider the following [2]:

• Agricultural trade.  Bilateral trade is in rough balance. Canada is the largest market for U.S. agricultural products, totaling $24 billion in 2015; (most of the agricultural products originate states that voted heavily Republican);
• Automotive products. The bilateral trade in vehicles and parts is roughly in balance; given the complex supply chains existing between the two countries, any attempt to interrupt those connections would hurt the industry on both sides of the border.

Perhaps, the most vulnerable area of bilateral trade concerns the automotive industry. Canada and the United States face similar factors when it comes to production centres to be located in either country. The dominant feature of the industry is that assembly operations are owned by subsidiaries of foreign –based OEMs. Corporate decisions are often made outside of the country of production. The industry is global and production decisions take in the most cost effective location above all else. Finally, both countries have had to contend with a lot of investment and production heading to Mexico.

A final point concerns cross border investment. With trade flows comes capital (financial and physical) investment. Here again, the flows are significant in both directions. In terms of existing investments, U.S. direct investment in Canada stands at $386 billion and Canadian direct investment in the United States at $261 billion (2014). Clearly, the United States has a heavy commitment in Canada . Any major disruption originating in trade flows will impact U.S. investment in Canada.

What can we expect to realistically happen should the Trump administration open up the NAFTA agreement for re-negotiations? First , there needs to be a recognition by Trump that, with respect to Canada, both countries have seen their bilateral trade growth substantially since 1993 NAFTA treaty signing. Second, outside of the auto sector, especially in agriculture and energy, bilateral trade is balanced and benefits accrue to both sides. Third, the auto sector is a highly complex with regard to decisions on plant locations and those decisions are made, often by U.S. multinationals with regard to corporate interests. Both nations face competition from low-wage countries, not from each other.

[1], [2] Office of the United States Trade Representative, 2015