The recent announcement of the U.S. Trade Policy Agenda and President Donald Trump's remarks about renegotiating NAFTA have left the Canadian government concerned about the chilling effect  this could have on inbound investment into Canada.

When NAFTA came into effect on January 1, 1994, it marked the formation of the world's largest free trade area at that time. In 2015, Global Affairs Canada reported that total trilateral merchandise trade amounted to over US$1.0 trillion — more than a threefold increase since 1993. NAFTA partners represented 28% of the world's GDP (with a combined GDP of US$20.7 trillion in 2015) even though the NAFTA region contains less than 7% of the world's population. By guaranteeing fair and non-discriminatory treatment of investors within the free trade area and creating a regional market with reduced trade barriers and efficient supply chains, NAFTA has provided certainty and stability for investors in Canada and the U.S. For example, since the inception of NAFTA, U.S. investors have invested C$387.7 billion into Canada while Canadian investors have invested C$463.3 billion in the U.S and Mexico.

Although President Trump recently clarified that his aggressive posture on renegotiating NAFTA has been targeted at Mexico, and that in relation to Canada all that should be expected will be the "tweaking " of NAFTA, the uncertainty of what that actually means is of concern to the Canadian government and investors looking to make long-term investments in Canada. For example, there is the spectre of the imposition of new U.S. border taxes which could have a significant impact on Canadian businesses that export to the U.S. The National Bank Financial Markets [PDF] (the Bank)  has estimated that U.S. protectionist policies could reduce Canada's GDP by as much as 1.5 percentage points. In addition, the Bank's report notes that a 10% border adjustment tax on Canadian imports into the U.S. could result in a 9% drop in Canadian exports. Added to this is the prospect of U.S. tax reform to make the taxation system in that country more competitive, as well as a promise by President Trump to ease regulatory burdens for those doing business in the U.S.  These developments can be expected to provide pause for some investors who previously were looking to Canada as a destination for their future long-term investments.

In an effort to push back on the U.S. government's courting of its domestic and foreign investors to play it safe by investing in the U.S., Canada seems to be pinning its hopes on fast-paced renegotiation of a revised NAFTA that will alleviate trade uncertainty. However, on the U.S. side, Commerce Secretary Wilbur Ross has indicated that the renegotiating NAFTA will take some time and the earliest start date will be the end of 2017 and moving into the next year. 

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