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A Trump win in 2024 puts the USMCA trade deal on thin ice: Analyst

Republican presidential candidate former President Donald Trump arrives at a campaign rally Saturday, March 9, 2024, in Rome Ga. (AP Photo/Mike Stewart)
Republican presidential candidate former President Donald Trump arrives at a campaign rally Saturday, March 9, 2024, in Rome Ga. (AP Photo/Mike Stewart) (ASSOCIATED PRESS)

Former U.S. president Donald Trump winning the White House in 2024 could create trade chaos for Canada in short order, according to Capital Economics.

The London-based research firm says the United States-Mexico-Canada Agreement (USMCA) trade pact, struck during Trump’s presidency in 2019, could become an early casualty of a second administration led by the current Republican frontrunner.

“We are not convinced by the idea that Trump would stick with the USMCA simply because he negotiated it,” Capital Economics deputy North America economist Stephen Brown stated in a report. “If he wins the election, Trump might bring up the USMCA immediately, given tensions with Mexico over the southern border.”

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The U.S. presidential election is set to take place on Nov. 5. The USMCA is halfway to its six-year mark, when the three countries will start discussing its renewal.

“The key risk for Canada’s economy from the U.S. presidential election is that a Trump administration could pull out of the USMCA, leaving Canada subject to any U.S. import tariffs,” Brown wrote.

Trump has announced plans for a universal 10 per cent tariff on all imports, and tariffs up to 60 per cent on imports from China specifically. Under current policies, Canada would be exempt.

According to Capital Economics, 78 per cent of Canada’s exported goods are destined for the United States. Those are estimated to be worth 21 per cent of Canada’s gross domestic product. Due to complex supply chains, many items cross the border more than once.

Brown says it’s unclear if a U.S. president can withdraw from the USMCA unilaterally, or whether congressional approval is required. Under the USMCA, each nation can withdraw with six months' notice.

“To avoid that, Canada may have to grant concessions, such as increased market access to U.S. firms,” Brown wrote.

He says Canadians should keep an open mind when it comes to redefining trade with its biggest partner. For example, he notes Canada’s auto industry benefited from the negotiations in 2019, when new minimum wage requirements pushed up labour costs in Mexico.

Trump’s non-trade policies could also work in Canada’s favour. Brown says his anti-immigration stance led more foreign high-skilled workers to choose opportunities in Canada, benefiting the tech sector.

“It is also possible that a Trump administration would see Canada more as an ally if, as seems increasingly likely, the opposition Conservatives win the next election,” Brown wrote.

“The Keystone XL pipeline might even rise from the grave,” he added. “While that would be bad news for Canada’s climate credentials, it would almost certainly provide an economic boost.”

Last month, analysts at CIBC Capital Markets compiled a list of five Canadian stocks they see benefiting from a second Trump presidency.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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