Question

Should Canada have used the recent renegotiation of NAFTA to reconsider free trade with the United States and instead to use tariffs to protect domestic manufacturing in Canada?

Answer 1

The NAFTA or the North American Free Trade Agreement was abolished in the year 2018, with the set-up of USMCA or United States Mexico Canada Agreement. It put into place a fair deal for most countries to help them in growing and ensuring free trade among the participating nations.

That said, the implications of the agreement were different for all countries. Canada in specific banks high on its in house production of dairy products and had trade restrictions in place on goods that were imported from USA of dairy products in place for protecting their own interests.

With the abolishing of the NAFTA and a new Agreement coming into light, the United States can now freely sell daily products in the country. Also other sectors which get affected are iron and steel and prescription medicine since patent rights have increased from the existing 7 years to 10 years respectively.

But, the focus here as per the case study is whether or not Canada should introduce a strategy to protect its domestic interests using a tariff.

A tariff generally refers to a tax in which needs to be paid before a foreign good can enter the country. It is aimed at protecting the interests of the domestic country.

That said, in general if Canada was to not agree to the new policy and increase tariffs to protect its interests it would result in more bad points than positive ones. Generally, any country that adopts a protectionist policy is most likely to have more of it in the future this results in other countries having counter policies which end up being negative for both countries in the long run.

In this situation, the existence of trade agreements is because of the fact, that these represent why tariffs shouldn't be used. As a strategy tariffs are only regressive and the protection they give to the markets for a small period of time hinder their growth in the world economy meaning that technically advanced countries progress more and the demand for home grown commodities tend to decline in the foreign market.

Therefore, in my opinion Canada should not increase tariffs in order to protect domestic manufacturing but rather should focus on manufacturing higher quality products which can give competition to any imports that take place and increase their technological knowledge rather than go on protecting the industry which will stop growing with tariff related policies.

Please feel free to ask your doubts in the comments section.