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Almost $1-trillion in trade between the United States and Canada and 8.3 million jobs depend on Canada-U.S. supply chains and smooth flows of goods across the border.

Deborah Baic/The Globe and Mail

Any new barriers to Canada-U.S. trade caused by renegotiating NAFTA will harm American companies as well as Canadian ones, said a study released Tuesday that examines the potential impact of changes to the trade deal.

Policy makers on both sides of the border need to think about supply chains and the close links between companies and markets in such industries as agriculture, food and the auto sector, said a study done by the Ivey Business School at Western University and the Lawrence National Centre for Policy and Management.

"Hampered trade will mean job loss, decreased economic output, higher costs of production, lower returns for investors, fewer choices and higher costs for consumers," said the study, which examined the impact of trade on the Great Lakes region.

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"The manufacturing plants that 'win' through a thickening of the Canada-U.S. border are not in North America; rather, they are in Asia or Europe, as Great Lakes firms will no longer be able to compete with low-cost developing regions," the study said.

The Great Lakes region is home to the largest concentration of vehicle assembly in North America, a large chunk of the agri-food business and four states that flipped to the Republican column from the Democratic side in the 2016 presidential election, giving Donald Trump the White House.

Almost $1-trillion in trade between the two countries and 8.3 million jobs – including 414,000 to 563,000 jobs in the manufacturing sector – depend on Canada-U.S. supply chains and smooth flows of goods across the border.

The report was released one day after Prime Minister Justin Trudeau met Mr. Trump, amid fears that the U.S. President will act on his campaign promises to tear up the North American free-trade agreement in a move that is aimed at Mexico, but could cause severe collateral damage to the Canadian economy.

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The study warned, for example, that the widespread notion that Canada and the United States will simply revert to the terms of the 1989 Canada-U.S. free-trade agreement if NAFTA ends is "wholly unrealistic."

The elimination of Canada-Mexico free trade would also be bad for Ontario, it noted.

"Mexico is Ontario's third-largest export market for goods, so the elimination of a deal between Canada and Mexico, along with the resultant economic shock to Mexico's economy, will have a significant impact on the province," the study said.

The study examined two industries specifically – the auto sector and agri-food – and noted that of 87 agriculture and food commodities, the trade of 64 would contract if the border were thickened, while only 23 would benefit or feel zero impact.

The study urged policy makers to pay attention to $305-million (U.S.) worth of chocolate that is shipped to Ontario from Pennsylvania annually, and $329-million in ethanol that flows to the province from Illinois and Minnesota.

"Trade restrictions would impact the flow of goods in both directions and impose considerable price increases for both the processor and the end consumer," it noted in a look at how Canadian hogs provide the base for sausages sold by one U.S. company in Ontario grocery stores.

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In the auto sector, "NAFTA has created an incredible advantage," the report concluded.

It urged federal and Ontario government officials to make common cause with their U.S. counterparts in the Great Lakes states to promote the idea of "we make things together."

Given the links between auto makers and their parts suppliers, with parts made in the three NAFTA countries shipped to assembly plants in each of the three countries, auto industry executives in Canada are planning to lobby governors of key states such as Michigan, Indiana and Ohio so they in turn can lobby the U.S. government to make it aware that a smoothly functioning border is essential.

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