NAFTA Negotiations: Change for the Better?

Throughout his campaign for the Presidency, then-candidate Donald Trump vowed to terminate or renegotiate NAFTA. Mr. Trump referred to NAFTA as a “disaster” and “the worst trade deal maybe ever signed” despite its backing from the Republican Party. President Trump followed through on his campaign promise when he reopened NAFTA negotiations in August 2017.

Candidate Trump’s NAFTA Plan

NAFTA Background

The North American Free Trade Agreement (NAFTA) took effect in January 1994. The agreement gradually eliminated most trade tariffs between the United States, Canada, and Mexico. Most economists agree that NAFTA has benefitted all three countries on the whole. Experts point to the regional trade increase of $810 billion from 1993 to 2016 as proof of success. Additional trade between nations allows each individual economy to specialize and, in effect, minimize the cost of goods for all involved.

However, debate still exists over NAFTA’s impact on wages and employment within individual nations. In the United States, NAFTA critics blame Mexico’s low-wage competitive advantage for job losses at home. Detractors also fault NAFTA with rising Mexican farmer unemployment as a result of direct competition with subsidized American farms.

NAFTA Deficiencies?

President Trump envisions a renegotiated version of NAFTA reversing two troubling U.S. trends: decreasing job numbers and increasing trade deficits. Most experts feel that NAFTA is not the proper avenue to remedy these issues. In fact, some experts argue that trade deficits are not a problem at all.

Despite not seeing eye to eye with the U.S. President, economists do recognize NAFTA’s shortcomings. Susan Helper, the chief economist under President Obama, once stated that “NAFTA’s current rules allow companies to compete based on who can exploit workers or the environment more.” An article from The Atlantic further details how today’s NAFTA focuses on maximizing individual company sales overseas, often at the expense of the local workforce.

NAFTA Negotiations

While room for improvement exists, getting all three countries to agree on the mechanisms for NAFTA improvement has been challenging. The countries aimed to finish an updated deal by the end of 2017, but leaders were unable able to agree on terms.

In The Atlantic article cited previously, experts suggest that giving workers a greater voice in the NAFTA restructuring would help resolve some existing issues for all nations. This approach satisfies President Trump’s motto of “workers first” but would add complexity to the negotiations. Today’s NAFTA revolves around investor and big business interests that would likely conflict with the desires of the workforce.

Any changes to NAFTA will have a significant and lasting impacts to the trilateral parties. As a result, all three countries should consider the implications proposed change will have on job numbers, materials availability, and costs to the end user before signing a revised NAFTA document. Despite the trade war rhetoric that regularly floods sound bites and media coverage, an altered NAFTA could have positive returns for all economies in North America.

 

 

-Paul Scanlon