The ongoing trade discussions to avoid new U.S. tariffs may have significant ramifications, according to a recent study. The potential breakdown of the Canada-U.S.-Mexico Agreement (CUSMA) could result in substantial job losses and economic consequences on both sides of the border.
A report commissioned by the Canadian American Business Council and conducted by Oxford Economics evaluated three possible outcomes of the trade talks between the U.S. and Canada. The scenarios analyzed were the continuation of existing tariffs, the collapse of CUSMA, and the successful renegotiation of the agreement leading to improved trade relations.
If CUSMA were to disintegrate, an estimated 214,000 jobs in the U.S. and 102,000 in Canada would be at risk compared to the status quo. Conversely, a successful renegotiation could potentially create 137,000 jobs in the U.S. and 98,000 jobs in Canada.
According to Beth Burke, CEO of the Canadian American Business Council, the study underscores the vital importance of the U.S.-Canada trading relationship for the prosperity of both nations. The report also indicates that the economic impact of a breakdown in CUSMA would be substantial, with the U.S. economy projected to lose $1.04 trillion and Canada $271 billion by 2035.
The repercussions extend beyond employment figures, as inflation rates are likely to rise in both countries in the short and long term if CUSMA fails, impacting real disposable income, especially in Canada. Conversely, successful negotiations could lead to increased disposable income, slower inflation, and substantial GDP gains for both countries.
In a worst-case scenario, the report suggests that manufacturing sectors in the U.S., particularly in states like Iowa, Michigan, Kentucky, and Alabama, would face significant losses. Similarly, Quebec and Ontario in Canada are predicted to experience the most severe impacts on manufacturing industries if CUSMA collapses.
As the deadline approaches for new tariffs on Canadian products, officials are actively working to reach a deal to avert the imposition of these tariffs. Trade Minister Dominic LeBlanc and U.S. Trade Representative Jamieson Greer are engaged in ongoing discussions to present a potential trade agreement to President Donald Trump.
Burke emphasized the importance of continued negotiations and the likelihood of concessions from both sides to reach a mutually beneficial deal. Failure to reach an agreement could result in the imposition of new tariffs, particularly affecting manufacturers in central Canada.
The study by Oxford Economics also highlighted that certain manufacturing sectors, such as cement, concrete, paper products, wood, computers, electronics, plastics, and rubber, would be significantly impacted by new tariffs. Provinces like Ontario, New Brunswick, and Quebec are expected to bear the brunt of these tariffs due to their reliance on these sectors, while others like Saskatchewan, Alberta, and Newfoundland and Labrador may be less affected.
Overall, the study underscores the critical importance of trade negotiations between the U.S. and Canada and the potential economic consequences of a breakdown in the CUSMA agreement.
