Trump pulling out of NAFTA will add major uncertainty
NAFTA is arguably more important to the Canadian and Mexican economies than the EU is to Britain.
From the sounds of the Politico report, Trump pulling out of the deal is a done deal. It was an open question on whether he would try to work within the existing parameters or scrap it and start over. He has chosen the second option.
Trump has already delivered a draft notice to Congress on renegotiations. A formal letter will start the clock on a 90-day consultation period with Congress.
How it will all shake out is now a major mystery and could be a source of tremendous volatility in CAD and MXN. Earlier in the year, Trump said a new deal could be a win-win. The idea was that all countries could commit to less foreign content in things like autos -- Buy North American. But Trump's latest rhetoric on Canada and Mexico is worrying. In addition, changing the rules will be disruptive for many industries, along with the uncertainty.
The bottom line here is that volatility is coming. Trump seems intent on politicizing every disputed part of NAFTA and that will make it tough to compromise.
Mexico is in an even tougher spot because the framework for bilateral trade would breakdown. Canada-US trade, meanwhile, would revert to the 1987 FTA, which isn't all that different. But if he puts that in play, then the Canadian dollar could really go for a ride.
