JPMorgan details potential impact of ‘worst-case’ NAFTA scenario.
An analysis by JPMorgan says the collapse of NAFTA would have a significant impact on the Canadian Dollar, causing it to fall by as much as 10%.
As reported by Bloomberg, the bank says “A U.S. withdrawal would likely entail 25 percent tariffs on autos and dairy, disrupting supply chains and forcing the Bank of Canada to slash interest rates, according to analysts including Daniel Hui.”
In their report, the analysts said “The worst-case NoFTA could mean USD/CAD at 1.43 as the market prices a ‘safety-net’ 50bp cut by BoC. A potential overshoot would also probably be unbound and thus larger versus the best-case scenario, given the large unknowns.”
Of course, there is also the fact that economic shocks are often unpredictable, leading to a cascade of failures at multiple points in the system, meaning the crumbling of NAFTA could be even worse than the worst-case scenarios predict.
With negotiations between Canada and the U.S. not going anywhere, the Trump Administration continues to express a willingness to move ahead with a Mexico-only deal.