The Impact to Canada’s Economy if NAFTA Fails

The NAFTA stalemate is important. Should Canada fail to forge a favourable deal that addresses these issues, the nation’s slow economic growth is likely to face further decline, and Canadians are going to feel the pinch on their pocket books and may, in fact, lose jobs. So what’s holding back a new NAFTA deal? How can you help investors in the meantime?

Advisors need to understand the potential repercussions of a failed deal, and may wish to start problem solving with clients now on the issues that could have significant economic and financial consequences to Canadians, if the looming September 30 deadline isn’t met.

New data on slowing economic growth demonstrates that there is a need for advisors to act now to address the financial risks clients will face if the deal breaks down and significant economic sectors are impacted. Here are some of the core issues:

1. Auto tariffs

Trump has promised to apply a tariff of 25 percent to Canadian auto exports, which would certainly take a toll on Canada’s manufacturing industry.

That’s a concern, particularly when a new report from the Conference Board of Canada, published Friday, September 21, already indicates that economic growth will slow to 1.8 percent (from 2 percent currently) in early 2019. Plus, Canada’s job creation is already down, which will be felt further if tariffs are imposed that impact the manufacturing industry. In 2017, 337,000 new jobs were created in Canada. The report estimates that a mere 213,000 will open in 2018 to create employment opportunities for Canadians.

2. Dairy tariffs

The original NAFTA deal between Canada, the U.S. and Mexico restricted tariffs on trade between the countries – with one major exception. Canada has always applied steep tariffs on dairy imports that exceeded strict quotas, in order to protect Canada’s dairy industry. To date, the U.S. has consistently exported more dairy into Canada than Canada has ever exported to them. Trump has been pushing for a reprieve on these tariffs, which would greatly impact Canada’s dairy and agricultural sectors.

3. Generic medicines

Canada has been pushing back to ensure that the U.S. doesn’t impose the same requirements upon the pharmaceutical industry that it did when forging a deal with Mexico last month. The deal favours the production and sale of brand name medication, disallowing the production of generic medicines for two years following release. This move could cost the medical insurance industry, the government, and private individuals paying out of pocket, a significant amount of money.

How can advisors help?

Although the Conference Board report also estimates that consumer spending will be down in correlation with these developments, they predict that there will still be an impact on debt management goals. In addition, expect more difficulty in savings efforts – for the RRSP or TFSA, for example. For these reasons, working hard to help clients to invest sooner, rather than later, will pay off handsomely should economic futures be cloudy.

It is also expected that the Bank of Canada will increase interest rates three more times in 2019, according to the Conference Board of Canada’s report, putting more financial pressure on the average Canadian.  CPP rates will also increase starting in 2019.

Advisors can be instrumental in developing and implementing investment risk-management strategies before year end. This is particularly important in helping to provide financial security to Canadian families who might face job loss if various industries are affected.

Considering Canada’s competitiveness has also been impacted by U.S. tax reform, it’s never been more important to have these conversations with clients or establish contingency plans for them.

For more insights on your important role in addressing these issues as an advisor, also read our report “IMF Predicts Slowing Growth for Canada: What You Can Do About It.”

Additional educational resources:

1. Join Knowledge Bureau in November for this year’s Distinguished Advisor Conference, where two prolific speakers will address the cross-border issues most impacting Canadians. Dr. Jack Mintz will address Canada’s declining competitiveness; and Dean Smith of Cadesky Tax will help you navigate the needs of dual residents. Learn more about these riveting sessions in the DAC Agenda.
2. Knowledge Bureau’s Debt and Cash Flow Management course will show you how you can help your clients avoid the erosion of their wealth that comes with debt due to job loss or rising interest rates.
3. Or, go one step further and learn strategies for building sustainable wealth for your clients with our Elements of Real Wealth Management course, the first step in working towards your Real Wealth Manager designation.

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