In one of his first executive orders, President Trump has promised to renegotiate the North American Free Trade Agreement (NAFTA). Since the signing of NAFTA in 1994, trade among the member countries has increased significantly and North American supply chains now sprawl across Canada, Mexico, and the U.S. The stakes of a renegotiation are high, but the opportunity for the U.S. to strike a better deal is significant.
Donald Trump has put “renegotiating” the two-decades-old North American Free Trade Agreement between the US, Canada and Mexico at the top of his economic agenda and threatened to pull out of the deal if the US does not get what it wants.
But how might he do that and what would it mean for business? Here are five points to keep in mind.
- The economic stakes are enormous
Nafta went into effect on January 1, 1994. Since then trade between the three countries has exploded largely as a result of the birth of what are now continental supply chains.
US trade with Canada and Mexico now amounts to more than $1tn annually and made up almost 30 per cent of its trade with the world in the first 11 months of 2016. That was twice the US’s trade with China and 10 times its trade with the UK.
For many companies, the US pulling out of Nafta would mean having to unwind long-term investments. It would also mean losing access to cheap labour in Mexico, which many executives see as vital to their ability to compete against China and other low-cost producers.
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