Trump decided to renegotiate the 24-year-old North American Free Trade Agreement. This agreement created a free trade zone including Canada, the USA, and Mexico. NAFTA re-negotiations between Canada and the USA have stalled. Pundits see an “investment hesitancy” as investors wait to see how things will work out and what a new deal will look like. The question for those with investments north of border is, do your Canadian investments depend on NAFTA?
Is There a Problem with NAFTA and, If So, Whose Problem Is It?
Economic analysis indicates that the net result of NAFTA has been to improve the economies of the three nations involved. However, during the quarter of a century that the trade deal has been in effect, many workers have been displaced while others have gained new jobs. A large part of Trump’s appeal to his supporters is that he sees NAFTA as having been a big mistake for the USA and having hurt US workers.
Since the start of NAFTA, trade between the USA and Canada increased from $199 Billion USD a year to $518 USD a year. According to Investopedia in their article on the economics of NAFTA, the US per-capita GDP went up 39% while that of Canada went up 40%.
It would seem that the net result was about equal for the two nations. Nevertheless, negotiations are going forward albeit slowly. If negotiators cannot come to an agreement, or if they come to an agreement that hurts Canada, which investments will get hurt and which investments will see no adverse effect?
The Office of the US Trade Representative has data relating to imports from Canada.
- Canada was the United States’ 3rd largest supplier of goods imports in 2017.
- U.S. goods imports from Canada totaled $299.3 billion in 2017, up 7.8% ($21.5 billion) from 2016, but down 5.6% from 2007. U.S. imports from Canada are up 169% from 1993 (pre-NAFTA). U.S. imports from Canada account for 12.8% of overall U.S. imports in 2017.
- The top import categories (2-digit HS) in 2017 were: mineral fuels ($73 billion), vehicles ($56 billion), machinery ($21 billion), special other (returns) ($14 billion), and plastics ($11 billion).
- U.S. total imports of agricultural products from Canada totaled $22 billion in 2017, our 2nd largest supplier of agricultural imports. Leading categories include: snack foods ($4.2 billion), red meats, fr/ch/fr ($2.3 billion), other vegetable oils ($2.0 billion), processed fruit & vegetables ($1.5 billion), and fresh vegetables ($1.4 billion).
The biggest categories of Canadian imports into the USA are fuels (oil), vehicles, agricultural products (wheat), machinery, and plastics. These are the investment areas that stand to lose if NAFTA goes away or is drastically redrawn.
Other Options for Canada
An item in the Globe and Mail caught our eye. It says a Chinese group is buying up bankrupt oil sands operations in Alberta. Canada is rich in raw materials and it can sell its agricultural and processed food products anywhere on earth. Your Canadian investments might take a hit due to NAFTA changes, but one can expect any and all affected industries to find new markets and start to recover.