The Future of North American Trade Scenarios and Economic Implications 02 the Future of North American Trade | a Scenario Approach
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The Future of North American Trade Scenarios and Economic Implications 02 The Future of North American Trade | A Scenario Approach Scenario Thinking 04 Critical Uncertainties 06 Four Possible Scenarios for the Future 08 Economic Impact 12 Conclusions and Outlook 14 Methodology 16 Contacts 18 03 04 The Future of North American Trade | A Scenario Approach Scenario Thinking A Glimpse into the Future of North American Trade The North American Free Trade Agreement The challenge is to capture the complex ways Following the Breakdown of NAFTA in our (NAFTA) between Canada, Mexico, and the in which North America’s economic and third scenario, Mexico intensified its alliance United States is facing great uncertainty. political set-up may evolve. This will help to with Latin America to emerge from recession Political change, protectionist agendas, and a identify each country’s risk exposure and and foster the region’s socio-economic growing row over the agreement’s imbalance develop suitable strategic options on the development. Canada strengthened its ties to of benefits endanger its continued existence. basis of robust needs for action. the EU to compensate for its small domestic At the same time, disruptive technologies, market, while the US has isolated itself both new digital business models, and changing Scenario design provides the basis for politically and economically. social values also question the validity of the decision-making in the context of great existing trade agreement. uncertainty by analyzing and structuring In the North American Union scenario, drivers into critical uncertainties that could political, economic, and social integration has While the US administration contemplates the impact the future. Scenarios are narratives of united the NAFTA members into a strong agreement’s modification, Canada and alternative futures that provide a sound basis economic union that collaborates on key Mexico will probably strive to enhance NAFTA for developing future-proof strategies for political issues and the elimination of trade and tie renegotiations to complementary anybody with ties to North American trade. barriers. A lack of technological advancement topics such as immigration and regional forces each country to specialize in its security. Thus, the questions that need to be We have developed four scenarios to comparative advantages to support its answered are: what will the trade illustrate what trade could look like in North neighbors. relationships between North American America in 2030. countries look like in 2030, and what will the All of these scenarios demonstrate how impact on their respective economies be? In the Beyond Success scenario, digital differently a new set of North American trade entrepreneurship in North America is rules could play out. Let’s explore each Clearly, NAFTA renegotiations are likely to booming. A modernized NAFTA provides the scenario in more detail to better understand have far-reaching consequences for the ideal framework conditions for digital the implications. economic and political landscape in North businesses to take off. Universal internet America, as well as for the current trade access, e-governments, and a fully open- partners. Threats to cross-border value chains source approach make the movement of Enjoy the ride, arise from potential legal divergences and goods, services, and capital much easier, Your trade barriers. Closed borders could lead to along with creating new businesses. Labor economic recession, political instability, and and migration reforms have enabled NAFTA social unrest. However, intensified economic to realign toward highly skilled employment. integration or new trade ties could also open up new opportunities. In Digital Crusaders, the isolation of the US following the abolishment of NAFTA allowed In order to navigate the changing Mexico to catch up to US competitiveness by environments and respond to opportunities absorbing foreign talent and know-how. While and threats at an early stage, an Canada established deep trade integration understanding of possible North American with Europe, Mexico fostered its ties with trade models is required. China and South America, thanks to their interest in its new capabilities. 05 Critical Uncertainties Drivers That Will Shape North American Trade At the outset of our exercise, we developed a On the other hand, the future of North holistic list of drivers that have the potential to American trade is highly dependent on the affect North American trade relations in impact of digital diffusion. Advances in future. This was done with the help of expert technology and digitalization have led to the interviews and AI-based natural language rise of new business models that disrupt processing algorithms. The drivers identified incumbent industries. For instance, were then clustered into social, technological, automation and artificial intelligence continue economic, environmental, and political factors to replace an increasing number of jobs, while and rated in view of their degree of e-commerce makes conventional retail uncertainty and their impact on North business models obsolete. American trade relationships. The resulting list of prioritized drivers formed the basis of our Nevertheless, the success of digitalization is scenario analysis, since it enabled the not guaranteed. Regulations must establish determination of the most critical the framework conditions to enable digital uncertainties in the context of NAFTA data flows and cross-border trade, while new renegotiations. skills are required to accommodate the continued development and implementation According to our experts’ ranking, the first of technological innovations. Cyber security critical uncertainty that will determine the must also ensure the safety of data, systems, future of North American trade is the degree and applications. of future cross-border collaboration between Canada, Mexico, and the United In addition, the evenness of technological States. Collaboration can either increase in diffusion across multiple nations determines terms of deeper economic and political the magnitude of digitalization’s impact on integration or decrease as countries take competitiveness. An asymmetrical distribution more nationalist and protectionist positions, would provide significant competitive edge such as a return to WTO rules. The diverging over less developed nations or industries, views on the desired trade model also reflect while a more uniform distribution would the heterogeneous agendas that each balance and dissolve competitive benefits. country pursues. As a result, the second critical uncertainty of The drivers underlying this critical uncertainty our scenario framework is represented by the include the degree of cross-border impact of digitalization on competitiveness interrelations, the ideological divide, and which can either be decisive or insignificant. corruption, and also the development of global trade blocs and power structures. In The combination of both critical uncertainties addition, employee mobility and regional results in four plausible but highly distinct security represent two of the underlying visions of the future which are illustrated in drivers that have received particular attention figure 1. in the context of NAFTA renegotiations. 06 The Future of North American Trade | A Scenario Approach Fig. 1 – Scenario matrix to describe the future of North American trade Stronger cross-border collaboration North American Union Beyond Success Digitali- Impact of digitalization Impact of digitalization Every- zation is thing is ilimited digital Degree of cross-border collaboration Breakdown Weaker cross-border Digital Crusaders collaboration 07 Four Possible Scenarios for the Future North American Trade in 2030 Beyond Success In this world, digital entrepreneurship in people to meet regional labor demands. North America is booming. The However, the imbalance of employment has modernization of NAFTA, e-governments, and led to disparity and social unrest, while the universal internet access have made the digitalized economies also experienced a rise movement of goods, services, capital, and in cyber-attacks from hostile nations and people much easier, along with creating new terrorist groups. businesses. A fully open-source approach Stronger cross-border means that what used to be proprietary collaboration and knowledge becomes freely available to the public within the NAFTA region and benefits everything is digital mutual improvement and country-based specialization. Mexico has become a strong low-cost manufacturer of robots and car parts, while Canada and the US focus on developing technology and new IP. As automation replaced more and more jobs, North America had to realign toward highly skilled employment. Labor and migration reforms have enabled the movement of 08 The Future of North American Trade | A Scenario Approach Digital Crusaders In this scenario, Mexico has caught up with capabilities could bring some long-awaited the US in terms of competitiveness. After the opportunities such as new trade markets or abolishment of NAFTA and a decade of Foreign Direct Investments. isolation in the US, economic growth and technological advancement came to a halt. Immigration restrictions deterred highly qualified specialists from entering the country. Weaker cross-broder Seizing the opportunity, Mexico absorbed collaboration and foreign talent to increase the competitiveness of its national tech hubs. Moreover, the lack of everything is digital