What is NAFTA and Who Cares?

What is NAFTA and Who Cares?

Trump says NAFTA is a “bad deal” … and it is. NAFTA – the North American Free Trade Agreement – is currently going through an administrative review, and early talks on negotiating points are occurring between the three countries involved:  the U.S., Canada, and Mexico.

Arguing over Trump’s wall, Mexico has already stormed out of the early negotiations on revisiting the treaty.  Canada is concerned over U.S. protectionism.  There seems to be little momentum on changing the agreement, and it remains to be seen if President Trump would unilaterally withdraw, as he promised his supporters during the campaign.

A crucial plank in his 2016 Presidential campaign was his commitment to tear up the NAFTA trade agreement and negotiate a “better deal” for the country.  There were pros and cons with our existing NAFTA treaty, and it is important to consider what the good and the bad looks like regarding NAFTA.

I. What are the PROS of the U.S. being in the NAFTA treaty?

  1. NAFTA quadrupled trade between Mexico, Canada and the U.S. More trade usually means more jobs and more money.  Trade between the 3 parties increased to $1.15 trillion in 2015.   Most studies have concluded that U.S. economic growth is 0.5% higher each year thanks to NAFTA trade.
  2. NAFTA lowered prices. The long-term price trend of oil reversed itself, as oil is much lower than what it was projected to be back in the late 1980s.  Food prices have dropped.  Farm products dropped in price as well.
  3. NAFTA increased job creation and investment. NAFTA is believed to have created 5 million plus jobs since its inception, and foreign investment capital into the United States has tripled since it passed.  Multiple industries benefited such as health care, farming, and financial services.

II. What are the CONS of the U.S. being in the NAFTA treaty?

  1. Massive job loss in the manufacturing industry. While a net 5 million+ additional jobs were created under NAFTA, no one knows how to quantify job creation if NAFTA had never passed.  It is possible those 5 million jobs would have been created anyways as a function of supply and demand in the free market.  Much of the job creation was in the low wage service sector, and much of those jobs go to immigrants.  We do know over 1.5 million jobs have been lost in the manufacturing sector, and the sectors hardest hit included the automotive and textile industries.
  2. Suppressed wages across all blue-collar industries. With low wage competition from Mexico, the remaining productive sectors of the economy, from oil drilling, energy production, automotive manufacturing and more – ALL lost wages to cross-border competition.
  3. U.S. market share lost. U.S. market share in several industries was lost due to the out-sourcing of employment under NAFTA.  Losing the lead in key industries has impacted talent retention and our historic leadership role in business innovation.

NAFTA has been a mixed bag.  But President Trump’s larger point is more nuanced than that – by simply sticking with a deal that has cost the U.S. numerous jobs and in many cases entire industries, we have not made good use of our unique advantage as the “indispensable” market-place.  Re-opening the agreement to find ways to improve the deal – by committing to fair trade, not just free trade – is a responsible way to protect the interests of the American people.

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