How the New NAFTA Deal Will Affect Canada’s Economy

Trump and Trudeau shake on NAFTA Source: Politico.com After 14 months of intense negotiations, the new NAFTA deal has finally been given the go ahead, with Prime Minister Justin Trudeau calling it a “good day for Canada”. But is the deal all it’s cracked up to be, and how exactly will it affect Canada’s economy? Here is what you need to know.

A New Name and Some Big Changes

Firstly, the new trade deal will no longer be called the North America Free Trade Agreement or NAFTA. While it is essentially NAFTA 2.0, its new name is the United States-Mexico-Canada Agreement (USMCA). Both the US and Canada are calling it a win, with Trump citing the deal as “wonderful” while Trudeau says that it will “grow the middle class”. So, what are the major differences between the USMCA and the old NAFTA deal? One of the main goals of the new deal is to have more cars parts made in North America starting in 2020. For countries to qualify for zero tariffs, a vehicle must have 75% of its components manufactured in Canada, the US or Mexico. President Trump agreed to back down on the hard limits on Canadian auto exports, which would have meant at 20% duty on cars and auto parts shipped to the US. The US will also get a win in that American farmers will receive access to Canada’s dairy market. This has not gone down well with the local dairy industry, which is planning to renegotiate the trade pact. The tariffs on steel and aluminum are still in effect for now, however, there is talk that the issue will be resolved before the finalising of the USMCA. For now, Canada has responded with a 10% tariff hike on Heinz ketchup. Strange but true; and the idea behind this was to create a demand for local alternatives.

Faster, Cheaper Online Shopping

Canadians will feel the positive effects of the deal most significantly with cross-border online shopping, which second only to playing at a casino online seems to be a favourite pastime. The deal will effectively raise the maximum value of goods purchased online without paying duties from $20, all the way up to $150. At the same time, it raises the value of imported goods exempt from local sales taxes to $40. One area where Canadians will feel the pinch is with pricier prescription drugs. As part of the deal, Canada agreed to extend patent protections on biological pharmaceutical drugs to 10 years. Essentially this means consumers are going to have to wait a little longer before a cheaper generic alternative hits the shelves. Other key parts of the deal include increased intellectual property protections, improved labour rights and environmental laws. While the deal still has to be ratified by the respective governments, it stipulates that it must be reviewed in 6 years.

The Effect of the Trade War

Even though the USMCA deal ties Canada closer the US, there is still enough distance between the two countries to allow for global competition and the development of overseas exports. Since entering into a fierce trade war with the US, China has been keen to explore the Canadian trade market. It is plainly obvious that Canada is not on board with President Trump’s trade tactics, saying the higher tariffs violate the rules for members of the World Trade Organisation. While the two nations hike up tariffs, the Canadian economy can reap the rewards. There has already been as significant increase in the number of live Canadian lobsters exported to China. The steep tariffs on US goods mean that Canadian lobster is a much cheaper option for Chinese importers. This is just the start of what could be a major boon for the Canadian export industry. According to China’s ambassador to Canada, the country hopes to make progress on a free trade agreement with the country and other world powers and the new agreement is paving the way.


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