The Conference Board of Canada predicts a 0.5% decline in the economy, and the loss of 85,000 jobs in the first year should the North American Free Trade Agreement (NAFTA) be terminated by the United States.
That would be the best-case scenario in a post-NAFTA world, the think-tank said in a new report issued on Friday. Talks between Canada, Mexico and the U.S. to renegotiate the trade deal enter an expected eighth round at the start of April in Washington, D.C.
"Negotiations to renew the North American Free Trade Agreement have, by all accounts, not gone well since they began last year," reads the Conference Board's report. "The discussions have led many observers to speculate that the Trump administration will withdraw from the 24-year-old deal."
While the conference board says its analysis suggests a modest impact on the Canadian economy if NAFTA is terminated, it adds that several possible reactions are not considered in its analysis. These include further U.S. trade actions, including non-tariff barriers and a stronger reaction from businesses.
Its analysis says real merchandise exports would fall by $8.9 billion, or 1.8%, in the year following a NAFTA collapse, with the largest impact on motor vehicle and parts exports, which would plunge by about $6 billion.
Tariffs and a depreciating Canadian dollar would also boost the price of U.S. imports into Canada, leading real merchandise imports to fall by a similar $8.8 billion or 1.8%.
Higher import prices, the resulting decline in domestic consumption, and the loss of export competitiveness would lead to a $3.3 billion drop in real business investment spending in Canada in the first year following a NAFTA collapse, the report states.
Investment could decline further in the long-term, as the collapse of NAFTA would hurt Canada's ability to attract investment based on secured access to the U.S. market, further affecting long-term economic growth. Job losses would continue into the second year if NAFTA were to end, leading to total job losses of about 90,000.
