NAFTA’s effect on investments

The North American Free Trade Agreement (NAFTA) has been in the news in recent months because of President Trump’s desire to renegotiate the trade deal. Although various aspects of the treaty have become a topic of public discussion, such as the dairy sector, as well as subsidies for aerospace companies, what has been less talked about, but perhaps more impactful in scope, is the effect that these NAFTA negotiations can have on the continent’s investment sector.

Chapter 11 of NAFTA is specifically titled: Investment. It provides an established and predictable set of rules to invest across the borders of Canada, the United States and Mexico, while also establishing dispute-resolution mechanisms that facilitate the movement of capital across national boundaries.

The Donald Trump factor

NAFTA renegotiation investment

However, since the rise of Donald Trump onto the American political landscape, accompanied by his skepticism towards established trade treaties, an uncertainty about the future of NAFTA has most definitely had an impact on Canada’s investment sector.

According to Global News, a report prepared by research firm Pitchbook states that only $490 million dollar was invested in venture capital in Canada so far this year ending in April, which predicts a significant decline from 2016, which saw a record $2.11 billion invested in Canada’s venture-capital sector.

Canada’s private-equity sector was hit particularly strongly, in which only $990 million was raised up until April of this year, which is down from a level of $3.4 billion from the same time last year, and suggests totals this year will be below the $7.3 billion for all of last year. This puts Canada’s private-equity sector on pace to have its worst year since 2012.

The current uncertainty

So, the uncertainty surrounding NAFTA renegotiations seems to have a detrimental effect so far on Canada’s investment sector. What does this mean moving forward? Well, it can mean one of two things.

On the one hand, this current unease about NAFTA reflects just how much Canada has become dependent on the treaty, and how important its continuation is to provide stability and predictability.

On the other hand, there are suggestions that Canada might have to start thinking very seriously about the prospect of an end to NAFTA. Former Canadian Prime Minister Stephen Harper himself has recently said that he doesn’t believe the cancellation of the treaty is a bluff from President Trump. Instead, forces are at play south of the border that have made protectionism more prevalent.

Nevertheless, good investors know they have virtually no control over the politics of trade and investment. Instead, investors should always look for opportunities, despite any uncertainty. As the NAFTA process works itself out, Canada has ratified its free-trade treaty with Europe (CETA), and there will always be landing spots for global capital, whether it’s south of the border, or across an ocean or two.


Keeping focused during global change

Despite the continuing uncertainty surrounding the rise of global populist movements, such as those seen with Brexit, the election of Donald Trump, and various elections in Europe, including the Netherlands and France, 2016 saw broad global economic strength that is continuing well into this year.

As is usually the case, how the United States goes, the rest of the world goes, and that certainly seems to be holding true currently. In recent years, as the States was still experiencing one of the slowest economic recoveries in recent memory, that lethargy seemed to manifest itself with deep economic troubles in countries such as Italy and Greece.

Surprising political moves

What has created even more uncertainty is the effect that some of these economic troubles have had on the global political landscape. Only a few years ago it would have been hard to imagine Britain voting to exit from the EU, populist movements rising across Europe, and even Donald Trump being elected President of the United States. He’s probably still surprised himself at his own political success.

Yet, despite recent years of economic sluggishness, and the political uncertainty it has created, the global outlook today is perhaps better than it’s been for some time — fuelled by the economic confidence being experienced in the United States, which is in in part the result of a change in leadership.

A chain effect

So far, economic players have responded well to President Trump’s financial direction. Domestic job growth means greater consumer spending. Proposed corporate tax cuts could spur greater profits and yet more economic activity on American soil, which has broader impacts on international trade, currency, as well as the movement of capital.

Is there a lesson to be learned from all this? Maybe it’s this: That, despite the uncertainty that always comes with politics, and especially democracy, a focus on economic fundamentals always bodes well for global capital investment — no matter who’s in power.

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