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  • Help us build a better Ontario September 14, 2017
    If you live in Ontario, you may have recently been selected to receive our 2017 grassroots poll on vital issues affecting the province. Your answers to these and other essential questions will help us decide what issues to focus on as we head towards the June 2018 election in Ontario. For decades, the CCPA has […]
    Canadian Centre for Policy Alternatives
  • Does the Site C dam make economic sense for BC? August 31, 2017
    Today CCPC-BC senior economist Marc Lee submitted an analysis to the BC Utilities Commission in response to their consultation on the economics of the Site C dam. You can read it here. In short, the submission discussses how the economic case for Site C assumes that industrial demand for electricity—in particular for natural gas extraction […]
    Canadian Centre for Policy Alternatives
  • Ontario's middle and working class families are losing ground August 15, 2017
    Ontario is becoming more polarized as middle and working class families see their share of the income pie shrinking while upper middle and rich families take home even more. New research from CCPA-Ontario Senior Economist Sheila Block reveals a staggering divide between two labour markets in the province: the top half of families continue to pile […]
    Canadian Centre for Policy Alternatives
  • Join us in October for the CCPA-BC fundraising gala, featuring Senator Murray Sinclair August 14, 2017
    We are incredibly honoured to announce that Senator Murray Sinclair will address our 2017 Annual Gala as keynote speaker, on Thursday, October 19 in Vancouver. Tickets are now on sale. Will you join us? Senator Sinclair has served as chair of the Truth and Reconciliation Commission (TRC), was the first Indigenous judge appointed in Manitoba, […]
    Canadian Centre for Policy Alternatives
  • 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
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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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