Canada heartened by new congressional research report on NAFTA

In a recent note to clients, Edward Glossop, Latin America economist at Capital Economics, said the currency could tumble to at least 22 per dollar, but probably further, to about 22.50 or 23 per dollar if the trade deal were to collapse. As the Toronto Star reports, just one week after President Donald Trump embraced Canadian Prime Minister Justin Trudeau like a faithful friend, the administration is openly feuding with Canada over NAFTA.

With Canada and Mexico firmly rejecting US demands on dairy, autos and other areas, the retail industry group that represents companies including Gap Inc. and VF Corp. said the collapse of the trade agreement would be an "economic catastrophe".

U.S., Canadian, and Mexican government officials charged with renegotiating the North American Free Trade Agreement (NAFTA) expressed disappointment in the outcome of the fourth round of the talks completed on Tuesday, but vowed to stay at the table.

But the apparent deadlock in the talks underscored how a keystone of regional trade - US trade with Mexico has tripled since 1993 to $1.2 trillion - was now in jeopardy.

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After four rounds of talks squeezed into a two-month period, negotiators will now allow a month-long cooling-off period before returning to the bargaining table in Mexico on November 17. "We must ensure the decisions we make today do not come back to haunt us tomorrow".

"Economists generally argue that it is not feasible to use trade agreement provisions as a tool to decrease the deficit because trade imbalances are determined by underlying macroeconomic fundamentals", says the 37-page report.

"It is not clear how the (U.S.) administration would expect to reduce the trade deficit through the renegotiation". "NAFTA has resulted in a huge trade deficit for the United States and has cost us tens of thousands of manufacturing jobs", said U.S. Trade Representative Robert Lighthizer in prepared remarks at the conclusion of the fourth round of NAFTA talks.

The United States now has a trade deficit with Mexico of greater than $60 billion, but according to Freeland the United States now enjoys a small surplus with Canada of about $8 billion out of more than $630 billion in annual trade.

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"New tariffs or trade barriers have the potential of disrupting these supply chains, which could raise costs for US consumers and possibly make goods and services produced throughout North America less competitive in foreign markets", it points out.

Begun at the behest of the Trump administration, the new negotiations have set nerves on edge among market participants, with several USA proposals likely to face stiff opposition from US industry and lawmakers.

"We must understand that we all have limits", Guajardo said. Despite these concerns, Freeland also said she saw "concrete evidence of good will" from her US counterparts to conclude a new NAFTA that will benefit the three trade partners.

Lighthizer said he had no evidence that either Mexico or Canada is willing to "rebalance" this situation.

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  • Ryan Wade