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Map: Why Trump needs Canada in any North American trade deal

Michael B. Kelley
Head of Audience Development

The U.S. and Canada are unlikely to reach a new trade deal this week, and Thursday is Canada’s tentative deadline for turning any agreement into legal text by the end of the month.

President Trump wants to renegotiate the North American Free Trade Agreement (NAFTA) and reached a preliminary agreement with Mexico in August. But if no agreement is reached with Canada by September 30, then trilateral talks would be further complicated since Mexico’s president-elect, Andres Manuel Lopez Obrador would be signing the deal after taking office on December 1.

Both Congress and major U.S. business groups say that any North American trade agreement without Canada, which is 2nd largest U.S. trading partner with $581.6 billion in total two-way goods trade in 2017, would be unthinkable. And most observers agree.

“It is difficult to see a meaningful trade deal replacing NAFTA without Canada being involved,” Deutsche Bank Chief International Economist Torsten Slok wrote, “see chart below.

(Photo: Deutsche Bank Research)

President Trump has threatened to pull out of NAFTA and move forward with a bilateral trade agreement with Mexico. But Trump’s deal with Mexico, which baked in Canada entering the discussions, would have to be reworked without the third party. And Canadian Prime Minister Justin Trudeau has repeatedly said that no deal would be better than a bad deal for his country.

“Canada has a lot of leverage here,” Yahoo Finance’s Myles Udland said on the Final Round (video above). He later added: “While we are always framing this conversation in terms of ‘What can Donald Trump do?’ [and] ‘How far should Donald Trump push his advantage?’ … I’m not so sure that is necessarily the case when it comes to the Canadians.”

Trump has threatened Canada with harsh auto tariffs if no deal is reached. The U.S. president could also provide Congress with the requisite six months notice for quitting the existing NAFTA agreement.

“We really won’t know [if Trump’s tactics will work] until, say, two years down the road,” Yahoo Finance Editor-in-Chief Andy Serwer said. Trump “could end up looking like a genius. … The whole thing also could completely backfire.”

Read more: Former U.S. ambassador to Canada: Trump ‘is the arsonist that becomes the firefighter’