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Canada to be virtually untouched by Trump’s pull from the TPP

Get a grip, folks. The latest episode of Mr. Trump goes to Washington sounds a lot scarier for Canada than it actually is.

The president-elect vowed in a video released on social media Monday to pull the United States out of the Trans-Pacific Partnership (TPP), a massive new trade deal among a dozen Pacific Rim countries including Canada and Mexico. But while a U.S. exit from the TPP sounds like a crushing blow to international trade, it really isn't – at least not from a Canadian perspective.

Sales of Canadian goods and services to all the TPP countries other than the United States and Mexico amounted to less than 10 per cent of our total exports in 2015. By comparison, the United States by itself consumed more than three quarters of what Canada sold outside its borders.

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As those numbers suggest, the future of the North American free-trade agreement (NAFTA) looms as a far more significant issue than the outlook for TPP.

"NAFTA fundamentally reshaped North American economic relations," according to an assessment earlier this year from the Council on Foreign Relations, a U.S. think tank.

Since 1993, NAFTA has transformed the continent's industries, from agriculture to manufacturing, and helped triple Canadian exports to the U.S.

While Canadian trade negotiators boast that TPP is this country's most significant regional trade agreement since NAFTA, the two deals don't pack anywhere near the same punch.

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A renegotiation of NAFTA, as demanded by Mr. Trump, could disrupt continental supply chains and directly affect the nearly 80 per cent of Canadian exports that head to the United States or Mexico.

By comparison, TPP could "boost Canada's GDP by a permanent 0.127 per cent above baseline performance," according to an assessment earlier this year by federal government economists. In other words, the deal might expand our national economy by a nearly imperceptible fraction of a percentage point.

An analysis by the Peterson Institute for International Economics in Washington indicates that the biggest economic winners from TPP would not be Canada or even the United States, but rather small countries that would benefit from reducing their tariff barriers.

The institute estimates that real incomes in Vietnam would soar by more than 8 per cent by 2030 as a result of the trade deal. In comparison, the deal would boost real incomes in Canada by only 1.3 per cent – and U.S. incomes by an even paltrier 0.5 per cent. Given the limited economic impact of TPP in North America, why is there so much fuss about Mr. Trump's exit from the deal? Perhaps it's because the agreement was really more about geopolitics than economics.

The deal excluded China and would have made the United States the dominant voice in setting rules for business across a broad swath of the Pacific Rim.

Supporters can mourn the passing of that vision and worry about the possibility of China stepping into the vacated leadership position, but for now anyway the economic impact on Canada seems distinctly limited.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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