Trump Plans to Renegotiate NAFTA
True to his campaign rhetoric, President Donald Trump yesterday signaled his intent to renegotiate NAFTA, the free trade agreement between the United States, Canada and Mexico, scheduling meetings with the leaders of those two countries.
President Trump frequently promised to renegotiate the North American Free Trade Agreement while running for president.
And there will be consequences for the US’s trade partners if they refuse to renegotiate. “President Trump is committed to renegotiating NAFTA,” says the White House website. “If our partners refuse a renegotiation that gives American workers a fair deal, then the President will give notice of the United States’ intent to withdraw from NAFTA.”
NAFTA has been around since 1994, when it was signed by former President Bill Clinton. The deal eliminated most trade tariffs between the three nations, increased investments, and enhanced protection and enforcement of intellectual property rights.
US manufacturing exports to Canada and Mexico have increased 258 percent under NAFTA, and the agreement also helped generate a surplus in the agriculture and manufactured goods trades. That didn’t stop Trump from dubbing NAFTA “one of the worst deals ever” during the presidential campaign.
The government’s of Mexico and Canada are scrambling to coordinate their positions against a Trump negotiating onslaught. Mexican President Pena Nieto called Canada’s Prime Minister Justin Trudeau for help to press the president on the importance of NAFTA to the region. The two agreed to mount a united front on NAFTA, according to published reports.
Meanwhile, the Canadian Prime Minister is huddling with his cabinet for two days to hone his country’s negotiating position with Trump. Canadian officials have warned that with the two countries’ economies so tightly linked, adjustments to NAFTA could hurt Americans and Canadians alike. At the same time Canada’s ambassador to the United States opined in the press that Trump was focused on Mexico, and not on Canada. Trump may have been signalling friendly intentions to his neighbor to the north when he dispatched two of his top advisors to Trudeau’s Calgary retreat.
It’s not clear what changes Trump would want to negotiate to the treaty, other than possibly to link trade with border security considerations in the bilateral relationship between the U.S. and Mexico. Trump has repeatedly vowed to build a wall between the two countries and make Mexico pay for it. High-level talks on immigration, trade, and security between US and Mexican officials are upcoming tomorrow and Thursday.
It’s not at all clear to what extent NAFTA has contributed to the decline in US manufacturing jobs. Capital Economics recently released an analysis that showed US manufacturing employment as falling since the mid-1980s—before NAFTA was enacted—and dropping at a faster rate around 2001, when China entered the World Trade Organization. But manufacturing output has been increasing since the mid-1980s and is now almost equals the high achieved before the financial crisis of 2008-09. These figures suggest automation, and not trade, is main culprit for the loss of manufacturing jobs in the US.
The Center for Automotive Research, an automotive industry research firm in Ann Arbor, Michigan, warns that pulling out of NAFTA would cost the US 31,000 automotive jobs, mostly US parts manufacturers that ship to Mexico. The center released a study showing that a 35-percent tariff on light vehicles imported from Mexico would lead to a decline in sales of 450,000 cars and trucks in the U.S. because of higher prices.
“If the U.S. leaves NAFTA,” the report said, “companies in Mexico and Canada may seek alternate, more affordable places to purchase these goods, such as China, India, and other regions with large, international U.S. competitors.”more shipments of export cargo and import cargo in international trade.
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