It's in America's National Interest to Stay in NAFTA

Flags are pictured during the fifth round of NAFTA talks involving the United States, Mexico and Canada, in Mexico City

The United States' neighbors, Mexico and Canada, should be priority partners under President Trump’s new strategy for enhancing U.S. security and prosperity.

As this life-saving security cooperation has been deepening over 2017, the United States and Mexico negotiations to modernize the U.S.-Mexico-Canada trade agreement have bogged down over American proposals and the Trump administration’s talk of pulling out of NAFTA. Canada, Mexico and big chunks of U.S. industry characterize as counterproductive U.S. proposals on auto rules of origin, dispute settlement, government procurement and a sunset clause for the entire NAFTA agreement. As one senior U.S. business association official puts it, “this is the first time I have ever seen the entire North American auto industry united” in opposition to the U.S. government proposal on rules of origin. These concerns led the CEOs of GM, Ford and Fiat Chrysler to meet with Vice President Mike Pence to stress the dangers of the U.S. proposal. Fears that the United States is going to pull out of NAFTA have led a string of governors, senators, and farm and business leaders to stress NAFTA’s importance to the White House.

These cries of concern are based on the facts about the importance of Canada and Mexico for the U.S. economy. The two neighbors are the first and second export markets for the United States, and its second and third overall trading partners. They provide vital inputs for U.S. production and goods for American consumers. The U.S. farm and food industry, for example, argues that it could lose 50,000 jobs and the United States could suffer a $13 billion drop in GDP from the farm sector alone. Most of those farm states voted Republican in the last elections. Many are now afraid that leaving NAFTA will cost them dearly needed export markets, especially to Mexico.

Beyond, the farm sector, there is rising concern that a U.S. withdrawal from NAFTA would cause significant job losses in the United States as well as in Mexico and Canada. Studies are predicting U.S. job losses and displacements from 187,000 to over a million in worst case scenarios across several sectors of the economy as well as a notable hit to gross domestic product, and such loses would cost all three economies. Another study found that U.S. consumers could face extra costs of over $7 billion a year without NAFTA. And finally, a survey of investors found many predicting a shock to stock markets if the United States were to withdraw from NAFTA. This would be an unwelcome blow after the market boost expected from U.S. tax reform.

It is important to recall that NAFTA trade, despite the repeated assertions that NAFTA cost jobs, supports the jobs of up to 14 million U.S. workers. Just in U.S.-Mexico trade, for example, in 1993 700,000 jobs were thought to be supported by trade with Mexico. In 2015, 4.9 million U.S. jobs were found to be support by U.S.-Mexico trade. The assertion that the United States should somehow seek to rebalance its bilateral trade deficit through a new NAFTA is widely criticized as a red herring.

It is not surprising that many are worried about the economic turmoil if the United States were to withdraw from NAFTA, as threatened. This is especially true when many informed observers believe that if the U.S., Mexico, Canada and industry representatives were willing to sit together to work through the data and economics, they could find a way to address some important U.S. objectives. For example, on the goal of increasing trade within North America, a careful, informed reworking of rules of origin could produce progress, for example by including R&D spending and the full value of technology as contributing to North American content. Looking for additional ways to make more efficient the trade/shipment of intermediate goods produced in North America might also yield benefits. A key premise for success is to recognize that agreement on a modern NAFTA opens doors to new jobs and more competitive products.

Endangering Security Cooperation as well as Jobs