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It's white-knuckle time now. The prospects for NAFTA talks have looked dim for months, but suddenly, nerves are on edge.

The loonie and the Mexican peso fell on Wednesday. So did stocks in companies such as General Motors that rely on cross-border value chains throughout North America. Stock markets were spooked a little, if only for a day.

It was triggered by the combination of market chatter and a headline that blared that Canadian officials were increasingly sure U.S. President Donald Trump plans to pull the plug on the North American free-trade agreement (NAFTA). But Canadian officials have been downright pessimistic for months – in private, that is – and insist they have no new knowledge about Mr. Trump's intentions now.

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And then there was a separate Canadian counter-punch at the World Trade Organization, centred on softwood lumber, which suggested a more bare-fisted approach to trade with the United States.

This is the week that concerns over Mr. Trump's trade agenda morphed into NAFTA-danger syndrome, when people started to notice the risk and big-money bets were won and lost in the market.

You can bet Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland, at a cabinet retreat in London, Ont., are fielding calls and messages from worried business leaders. They are entering the steel-testing period of the talks to renegotiate NAFTA, when the fear will become palpable. Ms. Freeland could not really kill it off, either. Sure, she said she hopes it works out, but Canada is ready should Mr. Trump initiate a withdrawal.

How will Mr. Trudeau and his Liberal government react? Will they hold to a tough line, or scramble to give the United States some concession to make a deal?

The worry and pessimism inside the Canadian government is not new. Senior officials in Ottawa knew that last April that Mr. Trump flirted, cavalierly, with triggering a withdrawal from NAFTA. But gloom has been growing around the talks since the United States started putting so-called "poison pill" proposals on the table in the third round, in Ottawa last September.

But the Canadian government has not had any new indication now that Mr. Trump is ready to start the withdrawal process, a senior official said, other than what he and U.S. officials have said in public; Ms. Freeland was in Washington on Tuesday meeting U.S. Commerce Secretary Wilbur Ross, but he did not reveal Mr. Trump's intentions.

What has changed now is timing. For months, the United States has not backed away from key demands that neither Canada nor Mexico can accept. Ms. Freeland and her counterparts, U.S. Trade Representative Robert Lighthizer and Mexican Secretary of the Economy Ildefonso Guajardo, had set a "notional" deadline of March 31 to complete the talks – because of a Mexican presidential election campaign and U.S. Congressional primaries. The sixth round of NAFTA talks opens later this month in Montreal. That, they reasoned, could be crunch time.

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Because of that timing, the Canadian government is on heightened alert for the possibility Mr. Trump could trigger a withdrawal, a senior official said. But they don't know.

The headline on the Reuters story that ran on Wednesday was far more categorical. And the jitters hit the markets.

Some think the markets are slow to realize the risk.

"NAFTA is in the toilet," said Jerry Dias, the national president of Unifor, the country's largest private-sector union, and a NAFTA critic. "The only way it's going to survive is if somebody completely capitulates. And that's not going to happen in the short term."

But if Mr. Trump actually does have a serious renegotiation strategy, it was always going to come to this kind of nervous drama for Mr. Trudeau's government. Mr. Trump's deal-making has famously involved over-the-top initial demands and relentless pressure. He is not known for giving back gains to those who give in, either.

And there is some sign of counter-momentum in the United States, according to Dan Ujczo, a lawyer with cross-border law firm Dickinson Wright.

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Mr. Trump attended a meeting of the American Farm Bureau last week, and responded to farmers' concerns that they will lose their exports to Mexico and Canada by eschewing his usual tough talk on NAFTA. Farm-belt senators have been talking to the White House. That might "put a bit of hesitation in Mr. Trump's trigger finger," Mr. Ujczo said. A NAFTA withdrawal hitting commodity prices or stock prices is language Mr. Trump understands. And most Republicans in Congress simply want to punt the issue until after the 2018 elections. If there's a bit of progress in Montreal, Mr. Trump might be willing to delay – but continue to talk tough.

Ms. Freeland insisted Canada will stand up for its interests, but has some "creative" proposals to put on the table later this month. And Mr. Trudeau's government faces the challenge of holding on while the jitters rise.

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