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  • How to make NAFTA sustainable, equitable July 19, 2017
    Global Affairs Canada is consulting Canadians on their priorities for, and concerns about, the planned renegotiation of the North American Free Trade Agreement (NAFTA). In CCPA’s submission to this process, Scott Sinclair, Stuart Trew and Hadrian Mertins-Kirkwood point out how NAFTA has failed to live up to its promise with respect to job and productivity […]
    Canadian Centre for Policy Alternatives
  • What’s next for BC? July 4, 2017
    Five weeks ago the CCPA-BC began a letter to our supporters with this statement: “What an interesting and exciting moment in BC politics! For a bunch of policy nerds like us at the CCPA, it doesn’t get much better than this.” At the time, we were writing about the just-announced agreement between the BC NDP […]
    Canadian Centre for Policy Alternatives
  • Could skyrocketing private sector debt spell economic crisis? June 21, 2017
    Our latest report finds that Canada is racking up private sector debt faster than any other advanced economy in the world, putting the country at risk of serious economic consequences. The report, Addicted to Debt, reveals that Canada has added $1 trillion in private sector debt over the past five years, with the corporate sector […]
    Canadian Centre for Policy Alternatives
  • The energy industry’s insatiable thirst for water threatens First Nations’ treaty-protected rights June 21, 2017
    Our latest report looks at the growing concerns that First Nations in British Columbia have with the fossil fuel industry’s increasing need for large volumes of water for natural gas fracking operations. Titled Fracking, First Nations and Water: Respecting Indigenous rights and better protecting our shared resources, it describes what steps should be taken to […]
    Canadian Centre for Policy Alternatives
  • Betting on Bitumen: Alberta's energy policies from Lougheed to Klein June 8, 2017
    The role of government in Alberta, both involvement and funding, has been critical in ensuring that more than narrow corporate interests were served in the development of the province’s bitumen resources.  A new report contrasts the approaches taken by two former premiers during the industry’s early development and rapid expansion periods.  The Lougheed government invested […]
    Canadian Centre for Policy Alternatives
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The Progressive Economics Forum

Unwarranted Gloom and Doom: The IMF on Canada and NAFTA

To read the media today, one would think that NAFTA is a keystone of Canadian prosperity and that renegotiation could lead to a national economic disaster.

That view has already been rebutted in a report by Scott Sinclair for the Canadian Centre for Policy Alternatives. He finds that a reversion to WTO tariffs and trade rules would have only a modest impact, albeit that some auto and agricultural exports would suffer. The key take-away is that we can afford to walk away from a bad deal if necessary.

The International Monetary Fund also do not see an economic disaster in the making in their latest country report on Canada.

In the first place, NAFTA has ultimately been quite disappointing in terms of the performance of the all important manufacturing export sector.

“Staff research has suggested that years of low labor productivity growth has eroded Canada’s external competitiveness in the manufacturing sector and caused a permanent loss of manufacturing capacity. The entry of China into the U.S. market following its accession to the WTO and the appreciation of the Canadian dollar during the oil boom in the mid-2000s made the problem worse. Canada’s early gains in NAFTA have been diminished. Today, Canada’s export share in the U.S. market for non-resource goods is about 11 percent, half of what it used to be in the mid-1990s.” P8.

Second, reversion to WTO tariffs would have only a modest short term impact and the economy as measured by GDP would soon recover.

“Scenario analysis of a tariff increase.

If the U.S. raises the average tariff on imports from Canada by 2.1 percentage points to the WTO most favored nation level, and there is no retaliation from Canada, simulations based on the IMF Global Integrated Monetary and Fiscal Model suggest a negative short-term impact on Canada real GDP of about 0.4 percent. The lower external demand weighs on exports, profits and disposable income, leading to permanently lower investment and private consumption. The Canadian dollar depreciates, softening the effect of the tariffs on exports, but increases the price of foreign goods. The trade balance deteriorates, then recovers as the exchange rate remains depreciated.”

One could add that the end of NAFTA would restore some significant policy space to Canadian governments. In short, we do not need to panic.

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