Severing NAFTA ties harms much more than trade
U.S. ties with Mexico and Canada touch the daily lives of more Americans than ties with any other two countries in the world. Trade, border connections, tourism, family ties and mutual security concerns link us closely, but we are endangering those links and our wellbeing by a contentious modernization of the North American Free Trade Agreement (NAFTA).
Now is the time to forge as much agreement as possible before elections in Mexico (July presidential and congressional elections) and the U.S. (November congressional elections) close the political space for agreement.
The best outcome would be to conclude an agreement, but given the amount of work left to do, that may not be possible. If the three countries are able to agree conceptually on big-ticket items, however, that would add momentum, allow technical modernization talks to continue and reduce uncertainty for our economy.
The continuing discussions on the difficult issue of “rules of origin” for automobiles at the eighth negotiating round in April are very important. We need a full court press for progress. This will not be easy, but pulling out of NAFTA or leaving it weakened would badly harm U.S. businesses, farmers and workers and set the stage for a contentious relationship with Mexico’s new government.
What is at stake?
- $1.24 trillion in annual trade — more than U.S. trades with the EU and 1.9 times more than with China;
- nearly 14 million jobs;
- cross-continental production networks that provide lower costs to U.S. consumers and allow U.S. companies to compete more effectively with China and others;
- close cooperation on intercepting terrorists or bad actors before they reach the U.S.;
- an agreed U.S.-Mexico strategy for fighting drug trafficking;
- U.S.-Mexican cooperation on Central American and third country migration; and
- North American energy cooperation that puts energy security within our grasp.
Competing with China, supporting U.S. workers and growing the economy
It is important to underscore that the “big game” for the U.S. is out-competing a rising China and the other exporting powers. Our two neighbors provide the skills, investment and market specialization to do that more effectively.
We need to take other steps in order to become more competitive with China, including supporting U.S. workers with much better workforce development and adjustment programs. It will be much harder to compete well without a revitalized NAFTA, however.
A recent study, for example, finds that enhancing economic integration across the U.S.-Mexico border can add 700,000 to 1.4 million new jobs on the U.S. side of the border and $69-$140 billion just in U.S. borderstate economies.
Tremendous costs to ending NAFTA
Serious studies document the potential economic costs of ending NAFTA. Estimates include 250,000-1.2 million U.S. jobs lost and millions more in Mexico and Canada. Projections suggest GDP declines up to $120 billion with lost exports and costlier imports. Stock markets would likely experience turmoil.
The U.S. auto industry would be hard hit, as would farmers who have Mexico and Canada as two of their top markets, with over $40 billion in annual sales. Farmers are already seeing the potential effects, as buyers in Mexico purchased up to 900-percent more in agricultural products from Brazil than from the U.S. over the last year.
This is why farm state governors and senators are urging the White House to preserve NAFTA. U.S. consumers would have to pay more for goods now produced in North America’s value chains.
Homeland security partners
Mexico and Canada have been watching our backs. Since 9/11, the U.S. has significantly deepened homeland security cooperation with both neighbors. The three governments share, develop and act on intelligence about threats to the U.S. much more than in the past.
Canada invested heavily in border infrastructure and homeland security after 9/11, gradually building the capacity, programs and willingness to cooperate with the U.S. well beyond the border against potential threats.
Mexico similarly now works more closely than ever before with the Department of Homeland Security and others, sharing information to identify and intercept potentially dangerous actors. Significant new security cooperation agreements are in the works. Recognizing this, 10 former top U.S. military commanders just wrote President Trump supporting a NAFTA agreement.
Cooperation can continue to deepen around a modern NAFTA or it can wither among embittered attitudes and public criticisms. Already in Mexico and Canada there have been sizable drops in favorable views of the U.S.
In 2017, 65 percent of Mexicans expressed unfavorable views of the U.S. The danger with Mexico is that we move back to the narrative before NAFTA, when Mexico and the United States were called “distant neighbors.”
Breakthroughs needed now
To move rapidly toward agreement, all three parties must show flexibility. The United States has to be willing to work constructively around the hardline positions it has taken on such issues as rules of origins for autos, a sunset clause for the agreement, dispute settlement mechanisms and government procurement.
Canada and Mexico need to be creative in addressing underlying U.S. concerns. Mexico should accept a strong treaty chapter on labor rights. Canada needs to be flexible, including on support for its dairy industry. All three need to grapple with the new U.S. steel and aluminum tariffs.
The U.S. put these in the mix apparently to gain leverage, but they make it harder politically for either neighbor to show movement.
In addition to the big-ticket items, much other work remains on less controversial issues, which leads some to predict a long negotiation ahead. The key is to make as much progress as possible this spring. Agreement on big items can add momentum, allow work to continue through the U.S. and Mexican political seasons and promote economic growth in all three economies.
Progress requires that the U.S. put aside a zero-sum calculus. That perspective does not make for a good long-term relationship with neighbors. We have the opportunity to make the 21st century, the “North American century” by forging a good NAFTA 2.0. The alternative path leaves the field to adversaries and competitors. Let’s drive ahead for a stronger North America.
Earl Anthony Wayne is a public policy fellow at the Wilson Center, a former assistant secretary of state for economic and business affairs, the former U.S. ambassador to Argentina and the former U.S. ambassador to Mexico.