A former Bank of Canada governor says renegotiating the North American Free Trade Agreement with president-elect Donald Trump will be dangerous for Canada's automotive industry.

Part of Trump's win has been credited to voters in the rust belt — Illinois, Indiana, Michigan, Ohio and Pennsylvania — where his anti–trade and protectionist promises played well with the electorate.

And he'll remain beholden to those voters if he wants to stay in power, says David Dodge.

"We're going to have more of our classic border skirmishes with the Americans. The Canada-U.S. border will get thicker. I worry more about a lot of the bits and pieces that make trade difficult, as opposed to a wholesale slaughter," he told the CBC's Chris Hall in an interview for The House.

Former Bank of Canada governor David Dodge says Finance Minister Bill Morneau needs to focus on 'setting the stage' for the next four years ahead of this week's federal budget. (Tom Hanson/Canadian Press)

"This is bad news for the auto industry in Ontario.… The only thing I can hope is the North American auto industry is so integrated across these borders and stuff flies back and forth so much that you can't keep American factories operating without that flow taking place in the short run."

Dodge, now a senior adviser at the law firm Bennett Jones, says drastic decisions won't be made quickly, but over time he believes plants will set up across the St. Clair River and in other parts of the U.S.

"The tax side in particular poses a real problem for the government of Canada. We have just raised our top rates on the personal side at the federal level. We've raised the corporate rate at the provincial level, and I think both of those increases will make Canada a decidedly unattractive place for these innovative industries that the government of Canada is counting on," he said.

Pressure on softwood lumber

Ontario Premier Kathleen Wynne later told The House she believes renegotiating the deal is a good thing, as long as the provinces are part of the discussions.

"I'm not going to pretend [Dodge's] concerns aren't real. They are very real concerns, but I think we also have to remember that we are competing with the United States, but we're competing with the world," she said.

"When I meet with the governor of Michigan, we both agree that in order to be competitive we need to innovate, we have to be the best at what we do to compete for the world."

While Dodge doesn't believe Trump will follow through with his plan to rip up NAFTA, his comments have opened the door for changes to it.

On Wednesday, David MacNaughton, Canada's ambassador to the U.S., said the Liberal government would be "happy" to renegotiate the North American Free Trade Agreement with Trump's team.

"Obviously any trade deal can be improved, and to the degree that the president-elect of the United States wants to see improvements to NAFTA, we'd be happy to sit down and talk," he said.

Trudeau backed that up, telling reporters he's "more than happy to talk about it."

MacNaughton said he also hopes a deal on softwood lumber can be struck before President Barack Obama leaves office.

If not, "undoubtedly our softwood lumber deal is going to be even tougher to strike than it was," said Dodge.

The former Bank of Canada governor said Ontario could see another economic blow if Trump lifts restraints on cheaper coal-fired power generation as promised.

"These are real challenges for the government of Canada, for the government of Ontario, how we adapt," he said.

On the flip side, Dodge said a reversal of Obama's decision to deny the Keystone XL pipeline project could boost the Alberta economy.

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