Canada’s Trade Policy Options under Donald Trump: NAFTA’s rules of origin, Canada U.S. security perimeter, and Canada’s geographical trade diversification opportunities

Abstract

This paper analyses the trade policy options of Canada under Trump and reviews some arguments that have been made by economists and others in the current debate surrounding U.S. return to protectionism and mercantilism. For Canada, both imports and exports are vital, and trade with the U.S. and with the rest of the world is of key importance. The new mercantilist position of the U.S. administration under Trump requires Canada to reflect on how to communicate the Canada-U.S. trade relation in terms of win-win strategies. A good starting point for this exercise, however, is to emphasize that NAFTA, as a trade preferential arrangement, is not as valuable as it used to be in the 1990s because NAFTA margins of preferences are no more sufficiently attractive to offset the cost of complying with NAFTA Rules of Origins requirements. Second, Canada-U.S. border security measures introduced after the terrorist attacks of 2001 have also offset NAFTA’s tariff preferences. Finally, the paper discusses the benefits of diversifying Canada’s trade geographically in a world where North America has become a smaller share of the global pie.