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I read Canadian media mocking Donald Trump for saying North American Free Trade Agreement (NAFTA) was bad for USA. The writer argued that if anyone has reason to renegotiate or withdraw from NAFTA, it's Canada. The case was made for Canada withdrawing first thus forcing the issue onto Trump.

Is there merit in this argument?

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    Unless a person has taken the time to study the entire agreement, and has the necessary skill to understand it, his or her answer is unlikely to provide much value. It may be best to go to the source: the professional negotiators of the agreement (unless you are primarily interested in generalities or politicized opining).
    – George Cummins
    May 2, 2017 at 17:46
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    I don't think it makes sense to review it on per-country basis unless you clearly objectively and measurably specify what does "better" mean. It's improving conditions for some groups of interests one side and on the other side, as well as worsening them for some on each side. As every international-treaty. And there are many ways to measure it, so are the outcomes.
    – luk32
    May 2, 2017 at 18:05
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    @GeorgeCummins is more-or-less right: It would be virtually impossible to pin down exactly who benefits and how much. It's worth noting, most of the attacks on NAFTA are with regard to Mexico; and indeed, some quick research reveals there's apparently a VAT on US companies (products?) on the Mexican side. All that said, one could easily make a case that NAFTA is bad/corrupt simply based on its length... A much-better (and more transparent) agreement would be thus: "We hereby agree to trade without barriers."
    – Chris W.
    May 2, 2017 at 19:46
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    @ChrisW. There's VAT on every product sold in Mexico. Trump's problem with the Mexican VAT is manufactures get a refund on the VAT they paid on the materials used to make the goods they export. However they also get same refund when they sell their goods in Mexico. That's because that's how a Value-Added Tax works. The end user ends up paying the entire tax. When the good is exported the end user isn't in Mexico, so no one pays the VAT. This puts Mexican manufactures on the equal footing as US manufactures whose customers in the US don't have to pay the Mexican VAT while those in Mexico do.
    – Ross Ridge
    May 3, 2017 at 3:54
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    General remark about the wording (whether NAFTA is “better for Canada or the US”): Trade is not a zero-sum game where one party wins and the other loses. It’s possible that both benefit equally. It’s also possible that both parties benefit, but one has an advantage of 15 and the other of just 3 (in arbitrary units).
    – chirlu
    Oct 13, 2017 at 6:46

4 Answers 4

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In general, free trade is hoped to make everyone richer, on average, over the long run, but to do that it makes some people richer at other's expense in the short term. 'Better' for one side over another is not the expected way to look at it; what matters is whether the good outweighs the bad for a single side.

It is argued that NAFTA is very slightly bad for Canadians on average (-0.06% general welfare). Obviously it is good for some Canadians in particular.

The same analysis for the US is +0.08% general welfare, but pretty clearly at least some Americans suffer some losses.

Do the losers in either country have enough clout to overturn the winners? Only time can tell.

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    Many people are starting to come around to the notion that Free Trade is good in theory, but Fair Trade is good in practice.
    – SnakeDoc
    May 2, 2017 at 18:06
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    @SnakeDoc Even that statement sounds great, but in practice fair is rather subjective and has a tendency to change over time. For instance, what was once a good deal for US dairy producers can change into something that doesn't help or even hurts their bottom line because markets are not static. This doesn't mean that Canada got one over on the U.S. when NAFTA was signed, it just means that people are consuming more butter nowadays so duty-free exports of milk products coming out of the U.S. are down so people feel they are being taken advantage of.
    – Jeff Lambert
    May 2, 2017 at 18:52
  • @JeffLambert That's sort of precisely the point of Fair Trade. Trade deals shouldn't be set in stone... they should be more fluid depending on current conditions. Lots of things change. Nobody should be "getting one over" on the other party, otherwise people feel they're getting the short end of the deal. Fair Trade ideology seeks to keep things more fair for those involved... and when things get "unfair", have the ability to make changes. Easy example might be car imports vs. exports and high tariffs overseas on US manufactured cars.
    – SnakeDoc
    May 2, 2017 at 19:28
  • This answer seems to completely ignore the fact that NAFTA is a crony-capitalist "free trade" agreement. Politicians and lobbyists went to great efforts to write it (evident by its length and density, the genesis of the OP's question), which they would not have done if they (or their financiers) weren't going to particularly benefit. A genuine free-trade agreement should take no more than a page of text. (After all, how much text was required to enable trade between New York and Boston?)
    – Chris W.
    May 2, 2017 at 19:38
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    I've created a chat please use comments for criticism of the answer.
    – user9389
    May 2, 2017 at 20:57
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As a general rule, free trade agreements do more good for small countries than for large countries.

Here is why: It pays to have trading partners who are as different from you as possible. If you love apples, you want a trading partner who hates apples and will sell them cheap. If you're great at lawnmowing, you want a trading partner who's terrible at lawnmowing so he'll value your services. And so forth.

With no international trade at all, Canadians trade with Canadians. With free trade across the border, Canadians trade with North Americans. That's a win, because if you're Canadian, you are likely to differ more from the average North American than from the average Canadian.

It's also a win, of course, for the people on the US side, but not nearly as much, because, just as a result of sheer numbers, the average North American is a lot more like the average US'an than like the average Canadian. So when trade opens up, there's more of a difference between the average Canadian and that average Canadian's new average trading partner than there is between the average USian and that average USian's new average trading partner.

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    Welcome to Politics.SE! Generally, answers solely based on the common sense are discouraged. Your post is good as per motivational part, but it also needs some argument based on facts and evidence. Please consider adding some references about specific pros/cons of NAFTA for the U.S. and Canada.
    – bytebuster
    May 3, 2017 at 3:51
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    @bytebuster: I appreciate that you're trying to maintain standards. But in this case, the argument I've given (which appears in dozens of standard economics textbooks, including mine) is self-contained and stands or falls on its own. Listing the many sources in which this argument appears will not strengthen or weaken it. Of course if I were citing some obscure fact or appealing to some logical conclusion without providing the logic, you could quite reasonably ask for references. But that's not the case here.
    – Steven Landsburg
    May 3, 2017 at 4:36
  • Your answer assumes NAFTA provides symmetrical rights and responsibilities on both parties in neutral areas; it doesn't.
    – Josh
    May 9, 2017 at 8:36
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    @Josh: Yes, NAFTA is a particular case of a more general phenomenon.
    – Steven Landsburg
    May 9, 2017 at 13:14
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    @Josh: You appear to be responding to an argument I did not make. The only assumption that went into this argument was that NAFTA allows some trades that would not otherwise have been allowed. If you think there is some hidden assumption, please point to the exact step where you believe that assumption was invoked.
    – Steven Landsburg
    May 9, 2017 at 13:36
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NAFTA ending appears to be thought of as free trade ending. This may be true in regards Mexico, however it's very untrue in the case of Canada and the USA. Canada and the US's ties predate NAFTA and to fully end free trade between Canada and the US would take more than just NAFTA being repealed.

First it needs to be noted how integrated Canada's economy is with the US, especially within manufacturing. Even a 'made in America' car will see pieces built in Canada (Ford makes its fuel pumps almost exclusively in Canada)...to repeal the concept of free trade is pretty close to ludicrous and impossible. To go a bit further, most of Western Canada is on the same power grid as California and there are plenty of times where a home owner in Los Angeles can flick on a light and use the same power that's currently running a computer in Vancouver. Cross border shopping drives a good chunk of Washington state's exports. I don't think you could feasibly end free trade between the two nations any easier than New York could end free trade with Texas.

So what does a NAFTA repeal mean to Canada and the US? There is a 1989 agreement that was never repealed between the two nations that defers to NAFTA currently and would take its place if NAFTA was repealed. What NAFTA does is set up the regulatory format in which disputes are handled. Under NAFTA, this heavily favors the US and is why Canada would favor the scrapping of NAFTA.

There are a few disputes along the lines of dairy (Canada is protectionist of its dairy industry from province to province, let alone internationally), other farm products (including eggs), and softwood lumber. Currently the US can basically dictate to Canada what it feels and Canada has little recourse...as we are seeing Trump make use of now.

More-over, there is what is known as the "proportionality clause" which guarantees Canada send a certain amount of its oil production to the United States (primarily flowing into Texas out of Alberta). If Canada was to hit an energy crisis, under NAFTA they would have to continue sending oil to America regardless of their own needs. In 1989, this was a decently big thing as it protected American energy needs in the case of a nuclear war with Russia. In modern days, it's the key agreement that keeps Canadian oil on a discounted market and forces them to sell to the US regardless of more lucrative Asian markets. With NAFTA gone, there is little to prevent Canada from redirecting its oil through projects such as the 'Northern Gateway' to international markets. The end result is a near 10% instant increase in gasoline prices across the US as the cheap oil NAFTA guarantees is no longer guaranteed...Canada can use its oil as power leverage in all trade disputes with the US.

The major change with a NAFTA repeal has nothing to do with free trade between Canada and the US...it has everything to do with negotiation and leverage in trade disputes. NAFTA heavily favored the US...now Canada can insist on full prices as per the international oil market every time the US tries to address Canadian protectionism.

More recently...Bombardier got into some issues that saw a 220% tax levied against them. Under NAFTA, the US has this leverage. Without NAFTA, Canada gains a significant amount back.

Edit a bit more:

It's easy to call Canada the small trading partner here, but it's important to note how incredibly close the relation is and ultimately how large it is. It's easy to find claims that US-Mexico trade 'exploded' to $295 billion in 2016, a look into canada - us numbers by the the US embassy in Canada shows how small the us-mexico relation is. Also interesting, given our question posters disclaimer, that Canadian companies pay American employees some of the highest wages in the US. https://photos.state.gov/libraries/canada/303578/pdfs/us-canada-economic-relations-factsheet.pdf

U.S.-Canada two-way trade in goods and services totaled nearly $759 billion in 2014. U.S. and Canadian bilateral investment stock totaled nearly $698 billion.

U.S. exports to Canada totaled $375 billion in 2014 – 16 percent of total U.S. exports. Canada is the number one export market for 35 U.S. states.

Canada and the United States trade more than $2 billion in goods and services daily.

U.S. exports to Canada exceeded total U.S. exports to China, Japan, South Korea and Singapore combined in 2014.

U.S. subsidiaries of Canadian firms employed more than 546,000 employees in 2011, for an average wage of over $65,000 annually.

Compare these numbers with mexico around $550 billion, around 2/3rds of Canadian US trade...completely neglecting the foreign investment involved. sourced: https://www.census.gov/foreign-trade/balance/c2010.html

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  • Goong to rework this answer...becoming more apparent that the general view on a repeal of nafta is a repeal of free trade between canada and the us. This isnt true. Us amd canada are too inherantlt linked and agreements that predate nafta simply take over. Nafta repeal in this context is a repeal of a framework amd moving back to previous agreements
    – Twelfth
    Oct 13, 2017 at 0:17
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One of the things that may hurt Canada and other contries may be the courts that handles disputes within the trade agreement. Which, according to the link, are positively biased towards the U.S.

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  • You have it perfectly simon. Nafta defines the court processes that over see disputes which currently heavily favour the US and is where canada stands to gain and the us stands to lose with the repeal of nafta
    – Twelfth
    Oct 12, 2017 at 23:52

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