Just before the end of his first 100 days in office, and just a few days after taking aim at the supply managed dairy system and announcing tariffs of up to 24% on Canadian softwood lumber imports, president Donald Trump has stepped up his rhetoric following his campaign promise to renegotiate NAFTA. The Trump administration announced yesterday that it was considering an executive order on withdrawing the U.S. from NAFTA altogether, to confirm shortly afterwards that the U.S. would not pull out of NAFTA “at this time” and would instead be open to negotiate with Canada and Mexico.

While many observers always thought that Mexico was the main target of the Trump administration on this topic, Canada may now become collateral damage of the U.S. approach. Unlike Mexico, Canada has a very balanced trade balance with the U.S. and businesses on both sides of the Canada – U.S. border and their supply chains have become very integrated since the trade deal was signed by President Bill Clinton in 1994. It is estimated that millions of U.S. jobs depend on NAFTA related trade between Canada and the U.S., which gives some hope as to the ultimate outcome of a renegotiation of the trade deal with Canada.

The Trump administration also announced potentially significant reforms to the U.S. tax landscape. Despite that important details are left to be unveiled, the measures could include:

  • For individuals:
    • Reduction of the number tax brackets from 7 to 3 of 10%, 25% and 35%;
    • Repeal of the alternative minimum tax and the estate tax; and
    • Elimination of certain tax breaks which are said to benefit the wealthiest taxpayers.
  • For corporations and businesses:
    • Reduction of the corporate income tax from 35% to 15%; and
    • Measures to encourage the repatriation of offshore profits to the U.S.

The foregoing announcements and the uncertainty created until more is known and they are finalized could significantly impact the Canadian economy and are likely to have a chilling effect on investment in Canada.






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