Trade policies between countries are of key importance to the economies of the areas involved and many international agreements have remained in force for decades.
The U.S. maintains specific export and import arrangements with a number of countries that have stood the test of time. Now presumptive Republican presidential nominee Donald Trump wants to bring major changes to some of these U.S. policies and his first line of business is the NAFTA Agreement between the United States and its northern and southern neighbors.
The North American Free Trade Agreement is an agreement signed by Canada, Mexico, and the United States. The pact was signed simultaneously on December 17th 1992 by then U.S. President George H. W. Bush, Canadian Prime Minister Brian Mulroney and Mexican President Carlos Salinas in their respective countries and went into law on January 1st, 1994. NAFTA replaced the Canada–United States Free Trade Agreement between the U.S. and Canada.
The goal of NAFTA was to eliminate barriers to trade and investment between the three North American countries and its regulations benefited Mexico more than it did its northern neighbor. Its implementation immediately removed the tariffs on more than one-half of Mexico's exports to the U.S. and more than one-third of U.S. exports to Mexico. It took 10 years for all U.S.-Mexico tariffs to be fully subtracted except for some U.S. agricultural exports to Mexico that were phased out within 15 years. NAFTA also sought to eliminate non-tariff trade barriers and to protect the intellectual property rights on traded products. Most U.S.-Canada trade was already duty-free.
3 Million Jobs
According to the Office of the United States Trade Representative, U.S. exports to Canada and Mexico today support more than three million American jobs and U.S. trade with NAFTA partners has “unlocked opportunity for millions of Americans by supporting Made-in-America jobs and exports.” In fact, as the U.S.’ two largest export markets, Canada and Mexico buy more Made-in-America goods and services than any other countries in the world.
Canada or Mexico are the first or second largest export markets in over 30 out of the 50 states and over the years under NAFTA, U.S. trade with Canada and Mexico have supported over 140,000 small and medium-sized businesses. Since its entry into force, U.S. manufacturing exports to NAFTA have increased 258% and American exports of computer and electronic products, furniture, paper, and fabricated metals have more than tripled since NAFTA enactment.
Some economists see the NAFTA arrangement as inappropriate for the U.S. economy today, claiming it has brought down the manufacturing sector in America which has resulted in the loss of millions of jobs. And now Trump has made it one of the key issues in his presidential platform and he wants to negotiate a new agreement or pull out altogether from the existing one.
Worse Trade Deal in History?
Trump has trashed NAFTA as the "worst trade deal in history" and said that it and other U.S. trade policies have created a higher rate of unemployment . He promised to revive the country's manufacturing sector by limiting U.S. involvement in global trade and putting "America first," instead.
Many economists disagree and hold strongly to the belief that NAFTA has helped increase the competitiveness of American businesses and has had little effect on American jobs since its inception. They argue that despite a decline of nearly 5.5 million manufacturing jobs over the past 25 years, the number of people employed in manufacturing has risen from a low of 11.5 million in early 2010 to 12.3 million just last month.
In addition, the number of manufacturing jobs rose for years from the day it was signed. There were just under 16.9 million people employed in manufacturing in the U.S. at the start of 1994. The figure rose to as high as 17.6 million in 1998 and remained above 17 million until March of 2001 soon after former President Bill Clinton left office.
Trump takes issue with the no-tariff policy between Mexico, Canada and the U.S. claiming it allowed American companies to sell to and buy more from its northern and southern neighbors and made it that much easier for these companies to shift operations to Mexico, where labor is cheaper.
Without this ability to manufacture abroad, however, American companies would find it difficult to compete and could go out of business. In addition, with higher tariffs, America would lose access to overseas markets. And while it is true that the U.S. buys a lot from Mexico, it also sold $214 billion in manufactured goods to Mexico in 2015.
According to Trump, it is these very factors that have resulted in a dramatic drop in U.S. jobs. However, even with the increase in job opportunities should NAFTA be dissolved, imports under Trump's policy would become more expensive, raising the price of competing American-made goods by 11% and would cost the average household $2,200 a year, or 4% of their after-tax income, according to the National Foundation for American Policy. This would effectively levy a consumption tax on purchases and limit the incomes of shoppers.