Canada will be the biggest loser if NAFTA is fully revoked, say central banks

In this Aug. 16, 2017 file photo, the national flags of Canada, from left, the U.S. and Mexico, are lit by stage lights before a news conference, at the start of North American Free Trade Agreement renegotiations in Washington. (AP Photo/Jacquelyn Martin, File)

Canada has the most to lose if efforts to hammer out a new free-trade deal for all of North America are unsuccessful and the status quo is scrapped, according to a new report.

The Bank for International Settlements (BIS), a group owned by 60 central banks, found that if tariffs and other trade barriers shift to international norms, Canada’s GDP would shrink by 2.2 per cent, compared to declines of 1.8 per cent for Mexico and 0.22 per cent for the United States.

The analysis preceded the announcement by U.S. President Donald Trump on Monday that a deal with Mexico has been reached, opening the door for Canada to rejoin negotiations that have dragged on for more than a year.

If trilateral talks collapse, Canada would suffer a GDP loss of US$37 billion, compared with US$40 billion in the U.S, and US$22 billion in Mexico, according to the report.

The BIS predicts that revoking NAFTA would also cause wages to fall in all Canadian provinces and Mexican states, and in all but one of the 435 congressional districts in the U.S.

“While higher trade barriers would shield some domestic industries from import competition, the resulting wage gains would be more than offset by the detrimental effects of reduced export
opportunities and the increased costs of imported inputs for manufacturing firms,” wrote BIS senior economist, and the report’s lead author, Raphael Auer.

The BIS report found Canada would be the biggest loser if trade talks falter, in large part because of vulnerability to U.S. tariffs on vehicles and auto parts made in Canada.

Wages for Canadian auto workers were projected to tumble by more than 10 per cent in a worst case scenario.

“NAFTA revocation would lower real incomes in the large majority of sectors in all three NAFTA countries, and that average wages would fall in nearly all regions in North America,” Auer wrote. “While there would be differences in outcomes across locations, hardly anybody would gain in net terms.”

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