After speaking to Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau, President Donald Trump said he will not be pulling the United States out of the North American Free Trade Agreement. Instead, he will negotiate with Mexico and Canada to make NAFTA’s terms more beneficial for the United States.
During his presidential campaign, Trump promised to pull the United States out of NAFTA unless “some very big changes” were made, describing the current agreement as “very, very bad” for the country’s companies and workers. NAFTA was put into place in 1994, eliminating most tariffs on goods traded among the United States, Mexico, and Canada and starting the process of reducing trade regulations. This trade agreement established an important trade bloc among these three countries, deeply connecting their economies. If the United States were to leave NAFTA, each country’s respective economy would be negatively affected. According to The New York Times, after it was discovered that the White House had drafted an executive order meant to withdraw the United States from NAFTA, the Mexican peso decreased by more than 2 percent and the Canadian dollar fell by about 0.3 percent.
While Trump has not made explicit what terms he wants in NAFTA’s renegotiation, he constantly says that he wants the United States to benefit more. This includes the creation of more jobs, which Trump believes NAFTA has taken from the United States. However, experts claim that NAFTA has not affected jobs in the United States. Rather, it has given an advantage to U.S. manufacturers and reduced competition in low paying countries in Asia. In the two decades following NAFTA’s signing, both the volume of trade and the production of goods have multiplied.
Trump’s top advisors have expressed differing opinions about renegotiating NAFTA. Stephen K. Bannon and Peter Navano want to take a stronger approach on trade policy, while another group that includes Gary D. Cohn wants to take a more cautious approach to prevent any economic disruptions. Trump has already withdrawn the United States from the Trans-Pacific Partnership, or TPP, as one of his first executive orders as president. The TPP, a deal negotiated by the Obama administration, was a much broader agreement meant to replace NAFTA.
If Trump ultimately decides to withdraw the United States from NAFTA, four major industries will be greatly affected: the automobile, apparel, agricultural and medical device industries. According to The Times, the automobile industry is a major employer in all three nations, with Mexico and Canada relying on auto-making for tens of thousands of jobs. The exporting and importing of auto parts among all three countries are worth billions of dollars. If auto-manufacturing in Mexico is disrupted, the cost for manufacturers in the United States will increase, making it less competitive. Therefore, manufacturers will most likely move production to cheaper countries like China and India. According to The Times, it is estimated that the cost of a pick-up truck will increase by $3,000 in states like Michigan due to the large concentration of vehicle production in the area.
Last year, U.S. textile producers shipped more than $11 billion in goods to Mexico and Canada. If the United States left NAFTA, there would be an increase on tariffs for these goods, which would impact U.S. exports to these countries. Many jobs involving the apparel industry will be affected, such as retail and shipping. The agricultural industry is also reliant on the terms set by NAFTA. For example, the United States exports large amounts of corn to Mexico, and many Mexican goods are exported to Canada and the United States.
Without NAFTA, Mexico could impose a 37 percent tariff on corn, and the United States could impose tariffs on Mexican goods.
According to The Times, the United States imports around 30 percent of its medical devices and supplies, with Mexico as a leading supplier. Several U.S. companies have also established their factories in Mexico. If Trump wanted to move jobs in this industry back to the United States, he must first have the Food and Drug Administration approve a numerous amount of changes in medical factories.
Renegotiating NAFTA will also be an arduous process. First, Congress has to be given notice before they are given a 90-day wait period to review the Trump administration’s plans. Trump’s administration will have to put together a detailed proposal stating what it aims to change. He will then have to meet with Congress and provide an analysis on what economic changes the proposal will bring. All of this must occur before any policy changes are enacted.
John Cornyn, a Republican Senator from Texas and the current senate majority whip, said the following in regards to Trump’s original plan to withdraw from NAFTA, “We can’t get a divorce, we need to figure out how to make this marriage work.”