The Conference Board of Canada is predicting a 0.5 per cent decline in the country’s economy resulting in the loss of about 85,000 jobs within a year if the North American Free Trade Agreement (NAFTA) is terminated.
As talks to renegotiate the trade deal enter an expected eighth round in the coming weeks, the think tank says in a new report that would be the best-case scenario in a post-NAFTA world.
While the board says its analysis suggests a modest impact on the Canadian economy, it adds several possible reactions are not considered such as further U.S. trade actions including non-tariff barriers and a stronger reaction from businesses.
Its analysis says real merchandise exports would fall by $8.9 billion or 1.8 per cent in the year following a NAFTA collapse, with the largest impact on motor vehicle and parts exports which would plunge by about $6 billion.
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Tariffs and a depreciating loonie would also boost the price of U.S. imports into Canada, leading real merchandise imports to fall by a similar $8.8 billion or 1.8 per cent.
Higher import prices, the resulting decline in domestic consumption, and the loss of export competitiveness would lead to a $3.3-billion drop in real business investment spending in Canada in the first year following a NAFTA collapse, the report says.
Investment could decline further in the long term, as the collapse of NAFTA would hurt Canada’s ability to attract investment based on secured access to the U.S. market, further affecting long-term economic growth, the analysis adds.
Job losses would continue into the second year following a NAFTA breakup, leading to total job losses of 91,000.
“Negotiations to renew the North American Free Trade Agreement have, by all accounts, not gone well since they began last year,” the Conference Board of Canada report said.
“The discussions have led many observers to speculate that the Trump administration will withdraw from the 24-year-old deal.”