The possible repercussions of a NAFTA renegotiation on transport
A threat hangs over NAFTA, with President Trump saying he wants to withdraw from this more than 25-year-old free trade agreement. Remember that over three quarters of Canadian exports go to the United States. How will the Canadian economy, and more specifically the transport industry, be impacted if the agreement disappears?
What does NAFTA mean for Canada?
NAFTA stands for the North American Free Trade Agreement between the United States, Canada and Mexico. The treaty has made it possible to establish a free trade zone between the three countries since 1994.
Since the agreement’s enactment, trade between NAFTA partners has tripled to $946 billion (US). The North American economy doubled and in 2008 the aggregate gross domestic product (GDP) of the United States, Canada and Mexico exceeded $17 trillion (US).
On the transport side, half of the cargo traded between Canada and the United States is by truck. The Detroit-Windsor corridor is the primary area where trade is the most substantial. Two and a half million trucks cross this border every year, representing more than $125 billion worth of traded goods.
This free trade zone is a real benefit to Canada’s economy and the United States is their biggest trading partner, helping to strengthen the value of their economy.
What are the effects of a potential NAFTA renegotiation on the transport industry?
The threat of the American giant potentially withdrawing can be increasingly felt around this famous trade agreement’s renegotiations. This would have a negative impact on the transport industry, a significant economic lever in Canada.
In essence, if the US government decides to end NAFTA, it is likely to see a return of tariff barriers. This means that every time a Canadian product crosses the US border, a tariff will be imposed on it. The problem is that a product or a particular component may have to cross the border several times, especially for the assembly of a car. As a result, every time this happens, Canada will be taxed.
Faced with this unstable future, small business owners are increasingly tempted to produce their goods directly in the United States to avoid paying these customs fees. Again, this decision-making could lead to many job losses in Canada.
Faced with this uncertainty, transport companies must evaluate the new opportunities available to them. Starting to look for new markets, analyzing their strengths and weaknesses in relation to these potential economic transformations. For the moment, nothing is decided and only threats hang around the NAFTA renegotiations table. Still, the transport industry is a major part of Canada, and our merchandise exports to the United States will not stop overnight.
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