Photo: Chris Young The canadian Press
The automotive industry would be more affected than the other, since the production is highly integrated between Canada, the United States and Mexico.
The death of the NAFTA “would not be a disaster” for Canada, concludes a new study, and Quebec would be better than Ontario.
If it is true that the end of the Agreement on free trade in north america would be an undeniably bad news for the canadian economy, we can assume that we will adapt to them “in a relatively short time,” says a study by the Bank of Montreal unveiled Monday, which is in addition to other analyses that tend, also, to dramatize the consequences of failure of the renegotiations of the treaty which seem to go wrong between Canada, the United States and Mexico.
The experts of the BMO especially recall that, in the case where the United States would turn their backs not only NAFTA, but also to the agreement of free trade canado-american that preceded it, what are the rules of the world trade Organization (WTO) would apply and that these would significantly limit the increases in market rates allowed. In addition, “it is important to note that the policy would not remain stationary in the event of an unfavourable outcome of the NAFTA,” said Doug Porter, chief economist of the institution.
In fact, there is reason to believe that in order to cushion the shock, the governments would have to adopt policies of economic stimulus and the Bank of Canada assouplirait its monetary policy. We redoublerait also efforts to develop other commercial opportunities, particularly in Europe thanks to the new comprehensive economic and trade Agreement (CETA) between Canada and the european Union and Asia with the new draft of the trans-pacific Partnership currently under preparation, and all these other ongoing projects in China and India.
$ 1000 more per car
Overall, it is projected that Canada would lose approximately one percentage point of GDP growth over a 5-year horizon. “This remains an impact to be relatively modest for an economy that is expected to grow by almost 9 % during this period,” observes Doug Porter. This slight decrease plan would lead to an increase in the unemployment rate, which was 6.3 % last month, 0.5 percentage point. “Canada would be less that under the NAFTA, but this would not be a disaster,” sums up the study that compares this impact to that had this year the appreciation of the canadian dollar.
The first victims would be the consumers, it is said, since the combination of the increase in tariffs and the decline in the loonie would result in an increase in the price of imports leads to a general increase in the cost of living of about 0.8 percentage point. In the automotive industry — more affected than the other because the production is so integrated between the three countries that the coins pass through up to seven times the border before arriving at a finished product — it would cost and extra $ 1000 on average per vehicle.
Quebec less affected
In addition to the automotive production (90 % of the products exported to the United States and 2.5 % of tariffs) and the transport sector in general (69 % of which are exported), the most affected sectors in Canada — due to the levels of tariffs expected or the proportion of the canadian production, which takes the path of the United States — would be the textile and clothing (60 % of which are exported and 7.5 % rates), that of electrical equipment (60 % exported) and e (84 % of which are exported), chemicals (60 % exported) and plastics (45 % of which are exported and 3.7 % of rates), as well as beverages and tobacco (19.4 % of tariffs) and food products (24 % of which are exported and 4.5 % of rates).
Quebec would be better for this situation than Ontario, thanks mainly to the fact that its export markets are more diversified, in particular due to its commercial ties with Europe, but also because the agricultural sectors under supply management in the milk, eggs, and poultry, are more present and would not be affected by a failure of the NAFTA. The automotive sector and the transport, moreover, is very important in Ontario.
It is estimated that the United States account for 71 % of Québec’s exports and 14.5 % of its GDP, as compared to 83 % of Ontario’s exports and 26 % of its economy. If one looks at the share of exports to the United States, which are in the economic sectors most at risk, we note this time that the proportions are almost the same in Quebec (76 %) and Ontario (80 %), but that the relative importance of these exports in the economy is two times less in Quebec (11 %) than in Ontario (21 %).
These results are very similar to those of another study, the C. D. Howe Institute, reported Saturday in The line of Duty. It is said that the end of the NAFTA would not be catastrophic and would result in Canada by the loss of 0.55 of a percentage point of growth and 25 000 to 50 000 jobs on the horizon of 2023.
Launched in August, the renegotiation of NAFTA is proving to be extremely tense, with the us president, Donald Trump, who is threatening constantly slam the door. The parties are granted until the end of march to reach an agreement and will hold their next round of negotiations in Montreal, from 23 to 28 January.