By Paul Vieira

As the public rift widens between Mexico and the U.S., the North American Free Trade Agreement's third partner, Canada, has stayed out of the spotlight, reassured by signals from Washington that it will be afforded preferential treatment.

Members of Prime Minister Justin Trudeau's government have been lobbying U.S. lawmakers and administration officials, leaning heavily on trade statistics that show how the economies of 35 U.S. states and nine million U.S. jobs depend on cross-border trade.

But the balance of that trade may be even more significant in determining President Donald Trump's approach to his northern neighbor, as he pursues his stated intent to renegotiate or scrap Nafta.

Mr. Trump has made erasing deficits a focus of his strategy to reboot the American economy. The U.S. economy slowed in the fourth-quarter to 1.9% growth, the Commerce Department reported on Friday, dragged down in part by a wider trade deficit, which brought the headline growth figure down by 1.7 percentage points.

Unlike the U.S. trade relationship with Mexico, U.S.-Canada trade is roughly in balance, with the U.S. running a trade deficit in goods with Canada at $9 billion for the first 11 months of 2016, far less than the U.S. deficit with Mexico.

That makes it a relationship that Stephen Schwarzman, chief executive of Blackstone Group and chairman of President Trump's strategic and policy forum, called "a model for the way trade relations should be" during a visit Monday to a Canadian cabinet retreat.

Canada's ambassador in Washington, David MacNaughton, said his initial discussions with members of Mr. Trump's team indicate there is little concern over U.S.-Canada trade.

Canadian officials are in regular contact with administration officials and key White House advisers regarding Nafta, a spokesman for Canada's Foreign Minister Chrystia Freeland, whose job is to manage the U.S.-Canada trading relationship, said Friday.

"We are confident the new administration will see that Canada's partnership with the U.S. and in Nafta mutually strengthens our nations and provides real opportunities to grow our respective economies," the spokesman said.

Should Nafta be scrapped, rules governing U.S.-Canada trade would likely revert to the terms of the 1987 U.S.-Canada Free Trade Agreement that served as the precursor for Nafta, trade-law experts say -- with the caveat the Trump administration may seek a renegotiation of that pact, too.

Since Nafta's implementation in 1994, Canadian exports to the U.S. rose from US$110 billion to roughly US$340 billion as of 2015, while importsfrom the U.S. grew by almost the same amount.

Three-quarters of all Canadian exports -- the equivalent of one-fifth of Canada's gross domestic product -- head to the U.S., led by automobiles, motor-vehicle parts and crude oil. And Canada buys about 15% of total U.S. exports of goods and services.

But Canadian products now account for roughly 12% of total U.S. imports, versus 20% in 2002, according to data from TD Bank economists. Canada has lost market share to China and Mexico as companies move operations to lower-cost jurisdictions, the bank added.

"This view that changing Nafta would be bad for Canada is totally misplaced," said David Rosenberg, chief economist at Toronto-based asset manager Gluskin Sheff & Associates. "It really was lower-cost Mexico that truly made out like bandits on the deal."

Mr. Rosenberg said indicators like Canadian manufacturing employment and industrial production have yet to recover from highs reached early last decade, in part due to gains by Mexico on the automotive front.

Part of Canada's lobbying effort in Washington is to underscore how integrated their supply chains across the border during decades of trade liberalization.

Nowhere are the ties deeper than in the automotive sector, which was responsible for the first deal to liberalize trade between Canada and the U.S., the 1965 Auto Pact.

In 2015, Canada ranked as the largest export market for U.S. automotive parts, with $22 billion in goods sold, according to the Ann Arbor, Michigan-based Center for Automotive Research.

Leaders in the automotive industry are working on both sides of the border to assemble data on how higher tariffs could affect their companies, said Don Walker, chief executive of Ontario car parts maker Magna International Inc.

"We just want to make sure that nothing happens that would inadvertently drive the cost up" of makingcars in North America, Mr. Walker said.

Another factor in the cross-border trade relationship is Canada's role as the U.S. biggest supplier of crude oil imports.

Canada exported about 2.9 million barrels a day of crude oil to the U.S. in October, the latest official monthly data, accounting for 41% of all imports. The volume of crude oil imports from Canada has grown over the past few years, even as overall imports have fallen.

"We have never been as dependent on one country for our imported oil as we are on Canada," said Stephen Kelly, a visiting professor at Duke University.

--Russell Gold and David George-Cosh contributed to this article.

Write to Paul Vieira at

(END) Dow Jones Newswires

January 27, 2017 11:39 ET (16:39 GMT)

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