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Canadian officials see rising odds that Trump will leave NAFTA

Canadian Prime Minister Justin Trudeau is welcomed to the White House by President Trump in October.
(Sean Kilpatrick / Associated Press)
Bloomberg

Canadian government officials say there’s an increasing likelihood that U.S. President Trump will give six-months’ notice to withdraw from NAFTA.

The officials, speaking Wednesday on the condition that they not be identified, declined to say whether they now think the likelihood of Trump following through on repeated threats to quit the pact now exceed 50%. The Canadian loonie fell along with Mexico’s peso and yields on Canada’s government bonds.

A White House official, speaking on background, said there hasn’t been any change in the president’s position on the North American Free Trade Agreement.

Trade relations between the two countries have taken a dramatic turn this week, with Canada escalating its trade spat with the United States by filing a World Trade Organization complaint over American duties against Canada and other countries. U.S. Trade Representative Robert Lighthizer responded earlier Wednesday, calling that move a “broad and ill-advised attack.”

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Trump withdrawing from NAFTA “was always a risk, but that risk is clearly more elevated now,” said Brian DePratto, senior economist at Toronto-Dominion Bank.

A sixth round of negotiations will begin this month in Montreal. Talks to overhaul the trade agreement among the United States, Canada and Mexico began in August. They have so far yielded little firm indication of whether a deal can be reached to update the pact, the officials said.

The Canadian dollar fell 0.9% to $1.2574 against the greenback at 3:05 p.m. in Toronto. The peso fell 0.8% to 19.3963 per dollar.

“The market’s been too complacent regarding NAFTA termination risk for too long,” said Bipan Rai, a Toronto-based foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce.

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Mexican Economy Minister Ildefonso Guajardo has said that Mexico won’t negotiate under duress and will leave the table if the United States initiates the withdrawal process. The Canadian officials said Wednesday they were not sure how Mexico would react to any withdrawal notice, but that Canada would keep negotiating after one was given.

A withdrawal notice doesn’t mean NAFTA would be killed — a country can give notice and then not actually leave.

Wingrove writes for Bloomberg.

jwingrove4@bloomberg.net

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