Reimagining “NAFTA 2.0”: A Case Study in the Application of Social Scientific Methods for Political Risk Analysis

  • Joel Parsan, Manager, Member Relations, Global Risk Institute
  • Erik Brown, Research Analyst, Global Risk Institute
Three interlocked puzzle pieces, decorated with the flags of Canada, Mexico, and the United States.

FOREWORD

This report moves beyond traditional approaches to risk management in the financial services industry and focuses specifically on understanding political uncertainty. It uses the renegotiation of the North American Free Trade Agreement (NAFTA) as a case study to illustrate the value of social scientific theory when analyzing multilateral negotiations. Section 1 outlines concepts from negotiation theory and game theory that can be used to interpret multiparty bargaining scenarios. In Section 2, the renegotiation of NAFTA is introduced as a case study with which to apply the concepts introduced in Section 1.

Ultimately, the concepts applied forthwith are only a sample of the different theoretical approaches to uncertainty in international relations that are explored in the academic literature. Risk managers that use qualitative analysis to construct political scenarios and gauge the associated effects should seek to use models that are contextually relevant.