BMO Study “The Day After NAFTA” Highlights Consequences of NAFTA Withdrawal

November 27th, 2017

A new study published by BMO Capital Markets Economics lays out a number of different scenarios if the North American Free Trade agreement (NAFTA) negotiations fail. The study found that a NAFTA withdrawal would be especially detrimental to consumers in Canada, Mexico, and the United States. For instance, BMO estimates that consumer prices in Canada would be approximately 0.8% higher if NAFTA is terminated and it can be expected that both exports and imports would weaken significantly.

The study also confirms previous concerns about the automotive, textile, and agriculture industries. BMO found that withdrawing from NAFTA would leave these industries particularly vulnerable which will have significant, negative ramifications for border states and states with a heavy focus on agriculture. Furthermore, the study highlights that terminating NAFTA would slow U.S. GDP growth by approximately 0.2% from what it otherwise would be over the next five years.

Despite the fact that trade deficits do exist between NAFTA-trading partners, the agreement has ultimately been a big success for North America as a whole, but particularly for the United States. While terminating NAFTA could potentially lower the United States’ trade deficit with Canada and Mexico (which is less than 0.5% of GDP last year), the BMO study found that it’s very plausible this would be counterbalanced by an even larger gap with Asia and Europe.

Ultimately, the Bank of Montreal concluded that “…the agreement has been a net positive for all three economies and it is deeply unfortunate that we are even considering this possibility [terminating NAFTA].” After more than two decades, NAFTA has enormously benefited the North American economy and played a key role in strengthening the United States’ relationships with its neighbors. We have everything to lose from terminating NAFTA and nothing to gain.