The approval of the North American Free Trade Agreement (NAFTA) in 1993 ushered in a new era of trilateral free trade between Canada, the United States and Mexico. However, NAFTA has recently been superseded by the United States-Mexico-Canada Agreement (USMCA), when Canada became the last country to ratify the agreement in the beginning of March. Overall, the USMCA contains many of the same provisions as NAFTA and continues to facilitate free trade between the three countries, but takes a more-stringent stance on labour standards, among other provisions.
Nevertheless, free movement between the USMCA member nations has been affected in the short term by border closures in response to the COVID-19 (coronavirus) pandemic. The virus is not only spreading rapidly throughout the United States, but also throughout Canada and Mexico. As a result, IBISWorld anticipates the closure of the United States-Canada border to affect certain Canadian industries moving forward.
Non-essential vs. essential travel
On March 20, the United States-Canada border closed to all non-essential travel in an attempt to slow the spread of the coronavirus. The border, however, will remain open when it comes to “essential travel.” To this end, and to avoid cutting off trade flows between the United States and Canada, some activities are permitted to continue. For instance, the transportation of goods and necessary travel for work are allowed, as officials have largely employed a “negative-list” approach regarding who can cross the border.
This approach means that authorities are highlighting who shouldn’t be allowed to cross rather than who should, mainly affecting tourists and those travelling for pleasure. Consequently, the Tour Operators industry in Canada is expected to decline 1.7% over 2020 due in part to the border closure. Meanwhile, trade between the United States and Canada is unaffected, as are seasonal workers and students in either country holding valid visas.
Industry impacts of the border closure
Although trade between the United States and Canada is not likely to be affected in the long run, short term difficulties abound for transportation-focused industries that ultimately drive the flow of trade across the border. These include the Long-Distance Freight Trucking industry in Canada as well as the Freight Packing and Logistics Services industry in Canada. With all cross-border activities being more closely monitored due to the spread of the coronavirus, operators will likely have to contend with heightened regulation and more inspections concerning their activities, slowing the speed at which they are able to deliver goods. Conversely, the border closure may still provide an opportunity for transportation industries should they prove able to rise to the challenge and overcome these logistical difficulties, as the services they provide remain paramount in light of current circumstances.
Lastly, the Brand-Name Pharmaceutical Manufacturing industry in Canada and the Generic Pharmaceutical Manufacturing industry in Canada may experience declining sales on the part of American consumers. Although this is not a main revenue stream for either industry (and despite its status as a legal gray area) increasing numbers of Americans have taken to crossing the border in recent years to purchase necessary medical treatments such as insulin from Canadian industry operators. The prices of these drugs are oftentimes more affordable in Canada than in the United States.
The duration of the coronavirus pandemic in the United States in particular will undoubtedly influence how long the border between the United States and Canada will remain closed, thus influencing the ability of these consumers to access necessary medical care amid both countries’ increasingly strained healthcare systems.
