Speaking at an event in Ottawa in June, Canada’s Ambassador to the United States David MacNaughton spoke at length about his outlook on Canada-U.S. trade relations and the upcoming NAFTA renegotiations. He reassured the audience that,

To significantly change the core of NAFTA would also hurt the U.S. It’s just not in the U.S.’ best interest.

From the very start of his campaign, President Trump has nevertheless consistently spoken about the “bad deal” that is NAFTA. But with trade between Canada, Mexico and the United states topping $1.1 trillion in 2016, there has been major concern over what would happen to these significant trading relationships should NAFTA be ripped up or re-negotiated.

After months of speculation, the U.S.  released their plans, contextualized by MacNaughton as a “position paper”, last Monday. This was followed closely by the announcement that the first round of renegotiation talks will officially begin August 16 in Washington.

What does the U.S. want?

Though there are a few pointed items that will likely make negotiations challenging, MacNaughton said he saw no real surprises in the “laundry list” of negotiation objectives released by U.S. Trade Representative Robert Lighthizer.

Most of the items in the 18-page objectives summary match up with the priorities in Trade Promotion Authority (TPA) legislation established in 2015. Much of the document was also consistent with U.S.-Canada-Mexico negotiations from the Trans-Pacific Partnership trade deal that Trump pulled out of in January.

But the United States’ objective of removing NAFTA chapter 19, a dispute resolution clause that allows countries to appeal anti-dumping duties, will be met by significant resistance from both Canada and Mexico. In the ongoing spat between Canada and the U.S. over Canadian softwood lumber, this clause has allowed Canada to avoid significant countervailing duties.

MacNaughton said Canada would be willing to discuss whether this chapter needed to be “improved or modernized. … But there needs to be some kind of a dispute resolution mechanism. It’s part of the agreement.”

Dairy farmers in Canada and the U.S. will also be fighting to be heard throughout the negotiations. U.S. farmers have argued that Canada has been hurting their industry by unfairly protecting its dairy market. A provision to remove these protections from Canada’s dairy industry is included in the Lighthizer’s list of objectives.

What does Canada want?

Months ago, Canada stated that it was ready for NAFTA negotiations. When discussing the biggest trade issues Canada faces with the U.S.  – a proposed Border Adjustment Tax, softwood lumber disagreements and NAFTA renegotiation – Ambassador MacNaughton stated that he expects discussions to go well for Canada, but added the caveat that there will be bumps in the road.

In preparing for NAFTA renegotiations, MacNaughton said “It was discussed in advance that with the 24 year old agreement – pre-existing Amazon and the ecommerce boom – there is a lot that can and should be updated.”

In the U.S., the law requires full disclosure of negotiation objectives. However, this transparency is not required of the Canadian government. Last week MPs from both opposition parties requested a meeting be held to discuss Canada’s approach to the negotiations.

Several groups have voiced their concerns regarding the renegotiations. The United Steelworkers Union have submitted their desire to remove the controversial investor-state dispute resolution clause in NAFTA’s chapter 11. Modernized customs processes and increased labour mobility are among the Canadian Manufacturers & Exporters proposals.

A number of Canada’s industries are also set to push back on U.S. objectives stating Canadian and Mexican companies should face increased restrictions from U.S. state and local governments when bidding on their contracts.

“Obviously if we could get a clarification on the trading relationship sooner rather than later it would be better, but having said that we’re not going to rush in to a bad deal,” MacNaughton said last week.

What does Mexico want?

The current terms of the NAFTA agreement protect Mexico and Canada from trade barriers imposed by the U.S. to protect their more vulnerable industries. Mexico’s Economy Minister Ildefonso Guajardo spoke about his apprehension over the U.S. removing these protections from the agreement.  “This will all have to be subject to the three sides, being in agreement in the process,” he stated last week.

Guajardo also raised concerns over removing NAFTA’s chapter 19. “What I have said insistently in my conversations with my colleagues is that we’re delighted to review trade balances provided that we focus on how to improve them by expanding commerce, not by reducing it,” he said.

On the more encouraging side, Guajardo stated, “what is positive is that the U.S. themselves paraphrased that they won’t reintroduce quotas or tariffs during this process (of renegotiation).”

Who will be involved in negotiations?

Ambassador MacNaughton will play a key role in the negotiations from the Canadian side. And we can expect involvement from all of Canada’s premiers at every stage of the negotiations. Kirsten Hillman, the lead negotiator for the TPP talks and a senior official on softwood lumber issues, will act as MacNaughton’s deputy in Washington and will also play a significant role. Canada’s negotiating team will be led by Steve Verheul, the chief negotiator for CETA.

Representing the U.S. at the negotiating table is the Trump administration’s chief negotiator John Melle, the assistant trade representative responsible for U.S. trade policy in the Western Hemisphere.

Economy Minister Guajardo will be integral to negotiations for Mexico, alongside Mexico’s Foreign Minister, Luis Videgaray who is also expected to take a senior role at the table.

All parties involved seem to want a timely agreement, but rather than looking at months or weeks, legislators warn that this could be a long process. With upcoming Presidential elections in Mexico and mid-term elections in the U.S. coming in 2018, the shuffle in focus, policies, and players could have a major delaying effect on negotiations and ratification. However, all three parties have agreed to aim for a close to negotiations by the end of 2018.

Although renegotiations of this pivotal trade agreement throw a shade of uncertainty over the future of trade between the three nations, Canada’s Ambassador remains positive in his outlook.

“The U.S. is realizing that Canada is a trusted partner – important for creating jobs all over the United States. As long as we can continue to demonstrate that, we will be successful in our trade relationship with the U.S.,” Ambassador MacNaughton stated.

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With his popular battle cry of “America First,” U.S. Pres. Donald Trump has vowed to re-negotiate or bring an end to free trade agreements he sees as detrimental to U.S. jobs and manufacturing.

Along with deals like NAFTA and the TPP, China has also often found itself at the center of Trump’s protectionist cross hairs. Trump’s attacks on China’s economic policies, and his threats against Chinese imports, have led to widespread speculation of a trade war between the world’s two largest economies.

So what would a trade war between the United States and China look like? And what is the possibility that such an economic showdown will come to pass?

U.S. claims against China

At the heart of the U.S. complaint against China is the size of the trade deficit between the two countries.

In 2016, the United States had a $347-billion trade deficit with China. That makes it the largest trade deficit the United States holds with any country — it’s five times the size of the country’s next highest trade deficit, with Japan.

In total, it adds up to more than 40% of the United States’ total trade deficit. However, it is worth noting that the United States’ trade deficit with China shrank by $50 billion since 2015, and U.S. exports to China are growing faster than Chinese exports to the United States.

As president, Trump also has continued his campaign claims that China severely manipulates its currency to the detriment of the United States. In a February interview with Reuters, Trump dubbed China the “grand champions” of currency manipulation. However, Trump’s claims don’t seem to hold up to facts, according to trade experts.

Former U.S. Pres. Barack Obama had labeled China as a currency manipulator before the financial crisis began nearly a decade ago. Since that time, China has adjusted its economic policy to favor domestic consumption over exports, which has brought change in its international exchange policies. In fact, according to the last U.S. Treasury report, China meets only one of the three criteria of being a currency manipulator: having a trade surplus over $20 billion. Another U.S. Treasury report on the matter is due out in April.

What a trade war could look like

Trump, however, has threatened tariffs as high as 45% on Chinese goods entering the United States. Some analysts have speculated that tariffs could target certain Chinese imports from industries with large surpluses over the U.S., such as the steel and furniture industries, or those from state-owned corporations. Trump also said during his campaign that he would make a priority of officially declaring China a currency manipulator.

Economists have projected that a 45% tariff on Chinese exports to the United States would lead to an 87% decline in those exports. The decline of $420 billion in exports would contract China’s GDP by 4.8%. Even minimal tariffs of 15% could lead to a 1.8% dip in China’s GDP, economists reported.

The effects of such tariffs wouldn’t only be felt by China, as they could retaliate against U.S. tariffs in a variety of ways.

Should China counter with its own set of tariffs against U.S. imports, the United States could see a major blow to its economy, as China is the 3^rd largest importer of American goods, behind Canada and Mexico. U.S. industries that would be particularly hard hit — those that rely heavily on Chinese imports — include manufacturers of air plane parts, automobiles and electronics, as well as growers of soy beans and corn.

The impact of tariffs on Chinese exports could have major impacts on American companies and families. There are many American-owned companies who export goods from China into the U.S., and an estimated 1.8 million U.S. jobs rely on Chinese imports. On top of that, Chinese imports save American households up to $850 a year.

Experts have projected that the impact on the world’s two largest economies would have a profound ripple effect on the global economy.

Will a trade war come to pass?

It’s yet to be seen whether the United States will make a move against Chinese imports that could lead to a trade war. While Trump has continued his “America First” and anti-China rhetoric, he has not set forth any policy affecting trade. However, U.S. Treasury Secretary Mnuchin did make headlines earlier this month when he refused typical G20 language rejecting protectionism during a meeting in Germany.

Chinese leaders are reportedly consulting with advisers and think tanks to determine how they should react to any potential U.S. trade policies targeted at Chinese imports. At the same time, Chinese trade officials have maintained that they would like to continue an open working relationship with the United States that is based on the development of mutually beneficial trade agreements. In fact the Chinese Foreign Ministry just announced plans for President Xi Jinping’s first meeting with President Trump at his Mar-a-Lago estate next week.

“Cooperation benefits both, while confrontation can only hurt.” – Chinese Commerce Minister Gao Hucheng said during a news conference in February.

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A new year means three things: lots of people are going to sign up for gym memberships they won’t use in three months, others will keep writing the wrong year on all their correspondence, and of course there are a plethora of new trends and predictions to look out for in the year ahead.

We’re going to focus on the last of the three.

What should you look out for or expect in the international business world in 2017? Let’s take a look and see what could be dominating the headlines you read over the next twelve months.

1. The future of the EU

The outlook for the EU is grim for 2017. UK Prime Minister Theresa May is expected to trigger Article 50 to begin the formal process to leave the EU, and Italy’s recent referendum has brought the country’s support for the union into question.

France and Germany also both face elections in 2017, which could result in new anti-EU governments who may want to follow the UK’s example.

If the UK, Italy, France and Germany are all led by Euro-skeptics by the end of 2017, the entire future of the EU will come into question.

2. U.S. trade under Trump

During the 2016 election, Donald Trump’s claims for his presidency ranged from refusing to sign the TPP and leaving NAFTA, to setting prohibitive tariffs on imports from China and Mexico.

While many have speculated that some of his proposals, most notably the sizable tariffs on China and Mexico, would be illegal according to WTO rules, it remains to be seen how closely his rhetoric will match his actions on trade.

Whatever he does, positive or negative, will affect countless American and international businesses.

3. Technical innovations in agile manufacturing and last-mile delivery

The ability to create manufacturing parts or entire products with nothing more than a computer and a 3D printer gives companies far greater agility in their manufacturing efforts, and offers opportunities for rapid innovation.

Drones are offering the possibility of rapid delivery to customers. While most tests have been focused on home delivery, some have even experimented with using GPS tracking to deliver directly to people based on their phone location, wherever they may be at the time.

Both technologies, as well as several others, are still in their infancy, so 2017 could be a year of major breakthroughs.

4. Big mergers between major trade companies

While 2016 did not match 2015’s extraordinary number of massive mergers and acquisitions (three mergers and acquisitions deals worth over $100 billion USD were completed in 2015), there were still several notable deals. These included chemical company Bayer’s purchase of Monsanto for $66 billion USD, pharmaceutical specialists Shire buying Baxalta, and Microsoft’s recent $28B purchase of LinkedIn.

2017 is expected to match 2016’s rate of M&As, with pharmaceutical/healthcare, telecoms and finance among the industries that are most likely to see big deals. Will any of them affect your business or your industry competitors?

5. Blockchain in trade finance

Blockchain could be a true game changer in the world of international trade, allowing buyers and suppliers to make online transactions accurately and securely without involving middlemen.

While it has so far been used mainly for Bitcoin transactions, it has the potential to transform supply chains, and revolutionize trade finance.

If corporations begin to use the technology more frequently throughout 2017, it could be the beginning of a new era of global trade transactions.

6. Thinking smaller

Micro-targeting in marketing efforts, product adaptation, and market entry has been an increasingly hot trend over the past couple of years, empowered by the collection, analysis and optimization of oodles of data.

Thinking small comes from a customer-centric approach to business, focusing on building experiences for customers that are as personalized and responsive as possible. These efforts can really pay off in client satisfaction, leading to repeat business and brand loyalty, and can increase purchasing frequency.

As analytics, customer management software and automation get more sophisticated, we will see this trend grow into 2017.

7. The future (or lack thereof) of free trade agreements

2016 was a big year for free trade agreements, with major developments in deals that have been in negotiations for years.

The Trans Pacific Partnership (TPP): The 12 member deal, officially signed by all parties on February 4, 2016 will go into force once ratified by all signatories by February 2018. However, incoming U.S. President Donald Trump has said he will not ratify the TPP and has also threatened to tear up or renegotiate NAFTA, throwing the future of both FTAs into question in 2017.

The Transatlantic Trade and Investment Partnership (TTIP): In negotiations for almost a decade, this FTA between the U.S. and EU has met fierce opposition from American and European citizens. The U.S. considers the deal a companion to the TPP, and with President-Elect Trump coming into power early in the new year, and the EU going through some major upheaval, this deal is also being thrown into question.

Comprehensive Economic and Trade Agreement (CETA): Canada’s Minister for International Trade, Chrystia Freeland made headlines in October 2016 after she arrived in Belgium to sign the Canada-EU treaty, only to be informed that the EU could not sign due to opposition from the region of Wallonia. The intra-Belgian disagreement was quickly resolved and the agreement was signed on October 20, 2016. CETA is now awaiting ratification from all parties over and could begin to be implemented early in the new year.

WTO Trade Facilitation Agreement: The TFA contains provisions for expediting the movement, release and clearance of goods, sets out measures for effective cooperation between customs and other authorities on trade facilitation compliance issues and contains provisions for technical assistance and capacity building among signatory nations. Negotiations concluded on the WTO TFA in 2013 and 103 nations have now signed on to the agreement, most recently Canada on December 16, 2016. With only seven more nations needed to ratify the agreement before it is officially implemented, we could see some new developments in 2017.

8. The growing world of e-commerce and drop shipping

According to analysts, online sales will increase from $335 billion in 2015 to over $523 billion in 2020, a rise of almost 10% per year, though the current annual growth rate is actually closer to 14%.

Brick and mortar retailers’ worlds have been rocked by the skyrocketing success of online shopping. E-commerce leaders are making strides in optimizing their strategies and will continue to do so into 2017. Many are predicting the end of frenzied buying on traditional shopping holidays such as Black Friday and Cyber Monday, as an increased focus on real-time customization takes over.

We’ll have our eye on the blossoming arts of predictive data analysis, the Uber-ization of shipping and an increase in the use of artificial intelligence in this area into 2017.

9. Future of ocean shipping

More than 90% of internationally traded commodities are transported over an ocean. In 2017, we expect to see strides being made in the use of automated “smart ship” technology, major increases in port capacity and changes to global shipping routes.

2016 has been a year of turmoil and challenges for the shipping world, with mergers, bankruptcies (Hanjin is still fresh in of our memories), port strikes and trouble filling ships to capacity. But into next year opportunities abound for innovative shipping companies.

10. The importance of professional certification

The trend of increasingly competitive job markets is one that won’t be going away in the year ahead. It will continue to be important to stand out from the crowd of applicants seeking work in 2017. According to Credforce, studies show that 94% of HR professionals will make some form of professional certification for specialized personnel, making skills validation through designations more than just an asset next year.

In the past year we have seen an increase in employers and government departments increasing funding available for employees to gain certification and this is a trend we see sticking around.

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Following the global trend for political change, the United States elected a candidate Tuesday who has promised to shakeup both the political and economic fabric of the country. Donald Trump has promised to reform his country’s approach to global trade, claiming that he can revive the American economy by bringing back jobs that America has, for decades, exported to other countries. In consequence, those looking to enter the U.S. market may find protectionist measures which will create challenges in bringing their products into the country.

Here are five ways Trump is expected to change the landscape for global importers and exporters:

1.     Pulling out of NAFTA

Trump has said that one of his first targets for reform upon taking office would be the decades-old North America Free Trade Agreement. In fact, Trump’s plan for his first 100 days in office lists the dismantling of NAFTA as a priority.

Ripping up NAFTA could have a serious effect on companies that trade across the Canadian, Mexican and U.S. borders. Since NAFTA was enacted in the 1990s, trade between the United States, Mexico and Canada has tripled, growing faster than the U.S. trade with any other country.

Should NAFTA be eliminated or reformed under the Trump administration, North American exporters in the agriculture, automotive or textile industry will find themselves navigating a new terrain as they work to keep their business models thriving while facing additional trade barriers.

Some have speculated that repealing NAFTA would still leave the Canada-U.S. Trade Agreement (CAFTA), NAFTA’s predecessor, in place. However, it remains to be seen whether this would be the case, and whether Canadians may still continue to enjoy freer trade across the U.S. border.

2.     A pull-back on other trade deals

NAFTA isn’t the only trade deal the President-elect has promised to go after once in office. Trump has said he will reject other trade deals the United States is considering, such as the hotly contested Trans-Pacific Partnership (TPP) and TTIP.

That means that companies importing and exporting across the Pacific will be looking for alternatives to the trade paths that would have been created by the 12-nation deal. Even if they maintain current plans, they will face greater obstacles than expected and may have to revise their business and financial plans accordingly.

In recent decades, companies have enjoyed a global environment that’s been favorable to trade. Borders have been opened to allow goods to flow more freely and easily between countries. If Trump, as president, takes the strong stance against trade deals he has promised during his campaign, companies who do business globally may need to re-evaluate their current plans for international markets and expansion.

3.     Change in the overall global trade environment

Trump has promised to challenge countries whose trade practices are questionable. That could include countries that are subsidizing exports or dumping high volumes of goods into the market. An aggressive approach to international trade compliance by the United States would mark a change that stands to disrupt the entire global trade system.

The U.S. government has largely turned a blind eye to such practices since the 1980s, when Pres. Ronald Reagan took a hawkish approach to international trade. Since then, most administrations have failed to confront countries or companies for such practices because it can be hard to prove and put a strain on diplomatic relations.

When countries take an active stance against one another on trade, it ensnares the companies trading between those nations in the disagreement.

When Pres. Obama imposed tariffs on Chinese tires, China retaliated by enacting heavy tariffs on American automotive parts and poultry entering the country. When faced with unfavorable trade positions by the U.S. government in the past, China also has penalized U.S. automakers and Boeing by favoring their European counterparts.

For countries that trade in markets that are likely to face challenges from the new U.S. government, particularly China, it may be time to start considering risk mitigation. Researching which companies or industries were involved in previous disagreements could also be a helpful step to determine whether your company may be affected.

4.     Stagflation and recession

Since trade is tied so closely to the U.S. economy, measures that make exporting and importing more difficult could have a negative effect, leading to a lack of economic growth and even an eventual recession.

Seven percent of U.S. jobs and 14 percent of the United States’ GDP depend on exports, according to a Morgan Stanley report. Therefore, a shakeup of U.S. trade deals could put these American jobs, as well as corporate bottom lines, at risk.

Lawrence White, an economics professor at New York University’s Stern School of Business stated:

Mr. Trump’s anti-international trade posture would be not good for the financial prospects of probably the 1000 leading companies in the U.S.

Economists have said that Trump’s rejection of trade deals could also lead to a higher cost of goods within the United States. That inflation could lead to higher interest rates and other economic woes that will ripple across the country and could lead to a recession.

Currency declines could create an opportunity for U.S. exporters to present more competitive prices, but if countries implement retaliatory measures in the form of tariffs, both importers and exporters could face a hard time in the years ahead. Preparations to face these times, including greater monetary reserves, slower expansion strategies, and more risk-averse trade finance strategies, are strong options for businesses concerned about their long-term viability.

5.     Uncertainty in the first 100 days

Markets never fail to falter when there’s an air of uncertainty. Perhaps the biggest difficulty in trade that Trump’s election will cause is the degree of disruption caused by his promise to shake up U.S. trade deals.

In the near future, importers and exporters might struggle to make new business deals from and with the United States. America’s international businesses may have trouble selecting new suppliers or forging new trade routes, as the global trade landscape transforms during Trump’s first 100 days in office.

How has this historic election affected your business plans?

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