Using a methodology that enables the capture of the full impacts (both positive and negative; direct and indirect) across the United States and international economies, a report prepared by Trade Partnership Worldwide, LLC for Business Roundtable finds that a termination of the North American Free Trade Agreement (NAFTA) would have significant net negative impacts on the US economy and US employment, particularly over the immediate years after termination.
Termination would re-impose high costs of tariffs on US exports and imports, which would reduce the competitiveness of US businesses both domestically and abroad. US exports would drop, both to Canada and Mexico and globally, as US output becomes more expensive and therefore US businesses would be less competitive in these markets. Foreign purchasers would shift away from US goods and services in favor of lower-cost goods and services made in other international markets, particularly those made in Asia.
These efficiency losses and trade shifts would have an impact on US production of both goods and services, and thus also on US employment. The report estimates that, if NAFTA is terminated and most-favored nation (MFN) duties are re-imposed for US trade with Canada and Mexico, the level of US real output would fall 0.6 percent below levels that would prevail if NAFTA were in effect in each of the first one to five years after termination. Lower output means less employment after all the gains and losses are tallied: on balance 1.8 million workers would immediately lose their jobs in the first year with full termination and the return of MFN tariffs.
While the focus of the study is the short- to medium-term, it also examines the national impacts of terminating NAFTA over the longer term (10 years and after). Terminating NAFTA would have negative impacts on jobs, exports and output even after new supply chains are formed. In this longer run, the report estimates that US GDP would remain depressed by over 0.2 percent, permanently.