The North American Free Trade Act (NAFTA) came into effect on January 1, 1994. One of the promises of the Trump administration in the US was to renegotiate the trilateral free trade deal, which operates between Canada, Mexico, and the United States.
While trade talks about the deal have been contentious, experts have long speculated NAFTA is good for Canada. On the other hand, many people were opposed to the deal when it first arrived nearly a quarter-century ago, and there are those who believe NAFTA has done more harm than good for the great white north.
Continuing trade talks have left many wondering what influence NAFTA has on Canada’s imports and exports.
How Free Trade Works
Before discussing the effects NAFTA has on Canada’s imports and exports, it helps to begin with a quick refresher on how free trade functions. When countries enter into these agreements, they agree to give each other preferential treatment when it comes to imports and exports. Under NAFTA, this means the elimination of tariffs on many products moving among Canada, the US, and Mexico.
Canada has long had preferential arrangements with the United States, which remains the country’s largest trading partner. Canada is the US’s second-largest trading partner.
Mexico is Canada’s third-largest trading partner, and Canada ranks fourth on Mexico’s list.
Total trilateral trade between Canada, Mexico, and the United States has reached almost US$1 trillion under NAFTA. This represents a three-fold increase in trade since 1993. In the same period, trade between Canada and the US doubled.
Canada relies heavily on US demand. Nearly 80 percent of all Canadian exports were bound for the US market in 2016. Around $2.4 billion worth of goods and services cross the Canada-US border each day.
Canada also relies heavily on imports from the US. In 2016, nearly $266 billion made its way from the US into Canada.
What Does Canada Export?
NAFTA is a wide-ranging agreement affecting many different sectors of the economy. It covers both merchandise and services. NAFTA even includes provisions for the movement of people across the borders.
Canada’s top export is mineral fuels, including oil. The Alberta oil sands have long been proposed as a better alternative to Middle Eastern oil, and the US’s oil-dependent economy has benefited from Canadian oil imports. Timber is another common export, although it’s lower down on the list. Iron, steel, and aluminum are other exports. Paper products account for over $6 billion in exports each year.
The second-largest export is vehicles. American auto manufacturers set up shop in Canada before NAFTA took effect, but they have benefited from the agreement. Machinery, plastics products, and electronic equipment are other large categories.
Canada exports much of the same merchandise to Mexico, although meat and cereal products represent two of the largest categories in the top ten.
What Does Canada Import?
Canada imports much of the same from the US. Paper, iron, steel, vehicles, and machinery are all large import categories. Canada also imports aircraft and spacecraft, as well as medical and technical equipment.
Canada’s imports from Mexico include some of the same categories such as vehicles and medical equipment. Mexico is also a large supplier of produce, including fruits, nuts, and vegetables.
What Will Happen with Renegotiation?
NAFTA is almost 25 years old now, so it’s time to update the agreement. There are many areas where the language is vague and needs to be updated, especially when it concerns technology.
Canada needs to renegotiate a good deal since so much is at stake. NAFTA could continue to develop the country’s international business and export markets, but only if the agreement continues to support Canadian interests.