After Donald Trump won the 2016 presidential election on Tuesday, leaders of both Mexico and Canada were quick to come to the table saying they’d be willing to look at renegotiating, or in Mexico’s words “modernizing,” the trade deal. Mexican Foreign Minister Ruiz Massieu told reporters that, regarding NAFTA, his country thinks now “is an opportunity to think if we should modernize it, not renegotiate it, but to modernize it.”
Canadian Prime Minister Justin Trudeau also told reporters today that he is ready to renegotiate NAFTA. Trudeau said “I think it’s important that we be open to talking about trade deals.” AFP reports that exports to the U.S. represent 20% of Canada’s GDP.
For both countries, undoubtedly it would be better to renegotiate NAFTA than to have the deal unilaterally terminated by the forthcoming Trump administration. According to Gary Clyde Hufbauer, a trade expert with the Peterson Institute for International Economics, a pro-NAFTA think tank, Trump has the power to unilaterally end not only NAFTA, but America’s participation in other trade deals like that with Korea and the World Trade Organization as well.
American trade balances with Canada and Mexico have been negative for every year except 1994, the year NAFTA was implemented. In 1993 America ran a trade surplus with Mexico of $1.7 billion and a deficit with Canada of $10.8 billion. In 2007 America’s trade deficit with Mexico hit an all-time low of $74.8 billion, and has since recovered to a deficit of $60.7 billion. Cross border trade with Canada saw its largest recorded deficit in 2006 at $78.5 billion, and thanks mostly to new domestic energy production in the United States, has recovered to only $15.5 billion.
Any possible change in NAFTA could bring both benefits and drawbacks to businesses across the continent. We’ll be following those developments here. To receive free analysis from Young Research sent directly to you, please sign up for our weekly email newsletter. For premium investment strategy advice, subscribe to Richard C. Young’s Intelligence Report.