U.S. President Donald Trump’s desire to renegotiate or entirely rip up the North American Free Trade Agreement has politicians and business owners deeply concerned. With trade in goods and services between Canada, the U.S. and Mexico totalling US$1.3 trillion in 2015, it’s easy to understand why. But for all the strong feelings and intense debate it inspires, economists say NAFTA has had less of an impact on the Canadian economy than many might assume. Here’s why the agreement Trump calls the “worst trade deal in history” might not actually be all that bad — or all that great.
NAFTA made history when it went into force in 1994 because it was the first free trade agreement between two developed countries (Canada and the U.S.) and a developing country (Mexico). But Canada and the U.S. already had a free trade agreement with each other that had been in effect for five years.
Keith Head, a professor at the University of British Columbia’s Sauder School of Business who has researched the economic impact of the Canada-U.S. Free Trade Agreement, said the deal had a much bigger impact on Canada’s economy than NAFTA.
For one thing, the proportion of Canadian exports sent to Mexico has grown only modestly under NAFTA, from 0.7 per cent in 1997 to 1.5 per cent in 2015, according to a report by the U.S. Congressional Research Service.
“We still don’t trade a whole lot with Mexico,” Head said. “The big deal, from our perspective, is the Canada-U.S. agreement.”