How will NAFTA & U.S Softwood-lumber tariff affect the Canadian Economy

By Patrick O’Brien (AIMS on Campus Student Fellow) 

With many discussions circling around NAFTA we must investigate the direct causes that the termination would bring to the Canadian Economy. While the U.S doesn’t seem to be very cooperative, Canada and Mexico are more than willing to negotiate and keep NAFTA on the table. The eliminate would cause the both the U.S and Canada to be subject to a 3.5% tariff imposed by the World Trade Organization on trade, and anticipated Canadian GDP to drop by 1% in ten years’ time. As yearly data is compiled for 2016, Canada’s three top exports to the united states were Vehicles ($58 Billion), Mineral Fuels ($54 Billion), and Agriculture ($22 Billion). The new tariff that would be imposed would severely affect the vehicle export business as parts are traded back and fourth over the border to complete the manufacturing process. This would severely affect Canadian jobs by the border, and others that work in the industry.

The Maritimes would be greatly affect as our primary revenue comes from the export market to the Unites States. In Nova Scotia the two biggest export markets to the U.S are Tires and the seafood industry. In a report prepared by BMO Michelin, which employs roughly 3200 employees in across its three plants in NS and had exports of $1.1 billion to the Unites states in 2016. Nova Scotia department of Finance estimates the WTO tariffs that would come into place if NAFTA ceases to exist would be between 2.5% on the rubber used in the tire manufacturing process and 4% for completed tires. The profit margins on the cross-border tire trade would be reduced if NAFTA was eliminated completely, leading to cost reduction which usually results in job loss. The $1 Billion Seafood industry in Nova Scotia which contributes to many jobs, especially in rural communities would be a risk. Tariffs on the primary good in the industry: Lobster, and filleted fish, would be taxed between 4-10 percent.

Aside from NAFTA negotiations, but still closely tied together, Softwood lumber producers/exporters in Canada will also be feeling the pain. As of late November 2017, the U.S had imposed tariffs on softwood lumber being shipped from Canada, at an average rate of 21 percent. The Forestry industry in Canada will be deeply affected by the tariff which will effectively eliminate the provincial subsidies that some lumber producing companies receive. Competitively this puts Canada in a bad position to be exporting to the U.S as it is now less attractive.

How will Canada combat the potential renege of NAFTA, and endure the affects of the Softwood lumber tariffs? Amid the current discussions of NAFTA with Premier Trudeau there needs to be discussions of an exit strategy to deal with the incoming tariffs. With current tariffs on Softwood lumber exports to the U.S, many log-producing companies are focusing their efforts on expanding into foreign markets. European markets become more attractive and profitable with CETA and also Asian markets. The same needs to be done with our major export industries. Vehicle exports to foreign markets will be difficult as German based vehicle manufacturers dominate Europe and Asia, although there could be great opportunities for shifting agriculture and seafood exports to these markets.

In conclusion the current situation with NAFTA is yet to be determined, and there is hope that we will come to an agreement with the United States and Mexico on trade deals that benefit all three parties, each individually different.

 

 

 

 

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