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American business is vital to Canadian banks
As NAFTA shakes up trade relations between Canada, Mexico, and the United States, Canadian banks are starting to get worried.
Fair and open trade between the three countries opened the doors up to a lot of available business—business that’s starting to get a little uncertain.
Many, if not all, of the big banks in Canada do business in America. The Bank of Montreal, for example, has a strong presence in the Midwest, and CIBC has acquired an American bank focused on high-net worth clientele. Americans account for a significant amount of business for banks, with nearly a quarter of RBC’s total revenue coming from America.
However, the unpredictability of recent politics keeps threatening to change things. While nothing dire has happened yet, multiple banks are reporting that capital is starting to leave Canada for the United States. Tax cuts by Trump, potential tariffs as NAFTA is renegotiated, and fear of the future of trade in North America means Canada is more and more falling behind the United States when it comes to a corporate competitive edge.
While the disruption of NAFTA is starting to hurt Canada, it’s not alone; Americans stand to hurt as well, even with the slowly increasing trickle of capital from Canada to America.
The states that BMO operates in stand to be hurt badly by tariffs on exports—Michigan is vital to the automotive supply chain, for example. While nothing earth-shattering has happened, the possibility of an increasing capital drain to the United States and lessened American business has Canadian banks looking inwards.
Canada, they say, has to remain competitive. What that means remain to be seen, but one thing is certain: it’s a mistake to wait until NAFTA talks are finalized to start taking action. No matter what, Canada needs to counter the perceived benefits of doing business in America over Canada.
A new free trade agreement will be best for everyone involved, but if Canadian banks are right, Canada needs to do more.