By Gary Clyde Hufbauer –FoxNews.com
The North American Free Trade Agreement (NAFTA) has benefited American consumers, workers and businesses since 1994. But ignoring the agreement’s success, President Trump instead chooses to denounce NAFTA, often suggesting the U.S. could withdraw altogether.
NAFTA has been a major source of economic growth in the United States, particularly for the automotive and agricultural sectors. Some 14 million U.S. jobs depend on the agreement with our nation’s two largest export markets, Canada and Mexico. Together, these countries spend nearly $500 billion purchasing U.S. exports annually.
President Trump’s approach to NAFTA is just one part of a misguided protectionist agenda. Unless his administration makes major course corrections, our economy will experience three attacks of severe pain from the president’s trade measures.
First, the president announced in late May that the U.S. would begin imposing a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from Canada, Mexico, China and the European Union. The move was widely panned by American business leaders as damaging to U.S. economic interests, especially for an automotive sector that depends heavily on steel and aluminum.
In Tennessee, a Trump electoral stronghold, more than 135,000 workers depend on the auto sector, building more than 830,000 vehicles annually. According to the Tennessee Chamber of Commerce & Industry, President Trump’s tariffs could endanger the state’s automotive base.
To the east, North Carolina’s craft beer industry has its own concerns. With more than 260 breweries, North Carolina’s craft beer industry says that aluminum and steel tariffs not only make cans more expensive, but raise the price of machinery. Gibbs Hundred Brewing Company of Greensboro says that 60 percent of its beer is packaged in aluminum cans.
Similarly, the oil and gas industry in Texas points out that steel tariffs will raise the costs of pipeline construction. Few economic sectors will be free from the pain of rising steel and aluminum prices.
Second, the Trump administration has sought to eliminate NAFTA’s Investor State Dispute Settlement (ISDS) mechanism, a vital defense for U.S. companies that invest abroad. Without this protection, U.S.-based multinational corporations are likely to cut back on outward investment, undermining job creation and export-related growth in the United States.
The Peterson Institute’s research shows that overseas investment is an engine for American job creation. For example, case studies in Mexico show a win-win relationship from establishing research and development facilities outside the U.S.: every 131 jobs added in Mexico lead to 333 jobs created here at home.
Eliminating the ISDS mechanism, as U.S. Trade Representative Robert Lighthizer has proposed, will not only slow U.S. job creation, it will also endanger U.S. property rights abroad.
Third, President Trump’s refusal to fully stand behind NAFTA could deal a painful blow to U.S. agriculture. NAFTA has fostered robust growth in agricultural exports over the past 24 years.
Today agriculture is a multibillion-dollar market between the U.S., Canada, and Mexico, according to the National Corn Growers Association.
North Dakota Commerce Commissioner Jay Schuler notes that North Dakota’s farmers export 84 percent of their crops – totaling $3.5 billion – to Mexico and Canada.
An ImpactECON study found that withdrawal from NAFTA, and the resulting retaliation, could mean a loss of at least 50,000 jobs in the U.S. agriculture sector and a gross domestic product loss of about $13 billion.
Potential withdrawal from NAFTA isn’t the only plank of the president’s trade agenda that could cause pain for agriculture. An Iowa State University economist calculated his state’s farmers could lose up to $624 million because of the president’s tit-for-tat tariff war with China.
Enormous quantities of U.S. corn, wheat, soybeans, fruits, nuts, and pork are exported abroad, but the specter of trade wars casts a heavy pall over American farmers.
President Trump has a clear choice: keep American business competitive internationally or travel down a protectionist path that visits severe pain on sectors of the American economy. The president should listen to U.S. businesses and reverse course before it’s too late.
Gary Clyde Hufbauer is a nonresident senior fellow at the Peterson Institute for International Economics.