At the 1992 signing ceremony in San Antonio with Carlos Salinas de Gortari of Mexico and Brian Mulroney of Canada, George H.W. Bush called the North American Free Trade Agreement a “turning point in the history of our three countries.”
Credit
Marcy Nighswander/Associated Press
What Is Nafta?
On Oct. 7, 1992, President George H.W. Bush stood in San Antonio flanked by the president of Mexico and the prime minister of Canada. “This meeting marks a turning point in the history of our three countries,” he said. “We are creating the largest, richest and most productive market in the entire world.”
Mr. Bush’s successor, Bill Clinton, was the one to push the North American Free Trade Agreement through a divided Congress. By 1994, the three countries were entwined in a trade deal that, in its 22 chapters covering 309 pages, lashed their economies together.
It eliminated most tariffs on goods traded between the nations, and set in place processes to get rid of regulatory and other barriers. The idea was that over time a company in Ohio could do business with a firm in Ontario as easily as it did with one in Indiana.
What Have Been Its Results?
As the election showed, whether Nafta was a good thing for voters in the United States or a bad one continues to be argued. But there are some things most people who study these things can agree upon.
The North American economy really does work as an integrated whole. United States exports to Mexico, for example, are now 3.5 times their 1993 level when adjusted for inflation. They have risen more than twice as fast as the overall economy. Trade between the United States and Canada has been pretty well balanced over time, but the United States has had about a $60 billion per year trade deficit with Mexico, importing more than it exports.
In the auto industry, for example, supply chains crisscross North American borders, with work of different complexity done in different countries. Your Ford made in Michigan might contain a dashboard made in Juarez and a transmission made in Windsor, Ontario. This complex supply chain has helped make the U.S. auto industry competitive with manufacturers in Asia and Europe, which also contain both low-wage and higher-wage countries with different specialties.
The impact on jobs and incomes in the United States is less clear. Economists broadly supportive of free trade deals argue that Nafta essentially encouraged a shift of jobs in the United States toward higher-value, more productive work, raising wages and having negligible impact on the total number of jobs. Those more skeptical of the deal view it as having created low-wage competition across the border in Mexico that accelerated the loss of manufacturing jobs. (See a more detailed explanation of the competing views here and here.)
One way to reconcile those two views: Nafta may have increased overall G.D.P. and average incomes in the United States — but at the same time contributed to the decline in well-paying U.S. manufacturing jobs that tended to be concentrated in certain cities and among certain groups of people, mostly blue-collar men.
Can President Trump Kill the Deal?
In theory, yes. But it would be a mess, particularly if he tried to do it right off the bat.
Article 2205 of Nafta says that a country can withdraw from the agreement six months after giving notice. But if President Trump did that, it would unleash disarray in major industries; ruin the ability to have good-faith negotiations with Canada and Mexico; and most likely cause a legal showdown with Congress (which passed Nafta all those years ago and wouldn’t want it abrogated without a say).
The Trump administration could avoid some of that trouble by instead reopening the deal.
What Is the United States Going to Ask For?
The president is required to give Congress 90 days’ notice to renegotiate Nafta. A draft letter to Congress circulated in March mentioned a desire to make it easier to impose tariffs if a flood of imports is causing serious injury or threatening to cause serious injury to a domestic industry.
The administration also wants to change “rules of origin” governing what counts as an automobile or other finished good produced within the free trade area. For example, a steering wheel might be assembled in Mexico but include parts made in China; the rules of origin state how many of those parts can come from China while still counting as a Mexican steering wheel and thus enjoy the benefits of the free trade zone.
If the required share of North American parts were increased — from its current 62.5 percent for many auto parts to 75 percent, for example — it would give an advantage to manufacturers in the United States and reduce competition with the low-wage countries of Asia.
Another administration goal is to have Nafta partners expand the market for United States-made goods in their government procurement.
But a Deal Should Get Done, Right?
Maybe. But keep in mind: This won’t be a one-way street. Both Canada and Mexico expect concessions from the United States in return for concessions they make. And some of the things that the Mexican government most covets will rankle many Trump supporters.
For example, Mexico wants better access to a program, widely enjoyed at the Canadian border, in which shippers that pass a security review are allowed to cross the border with a less intensive customs process (this is the international trade equivalent of the “T.S.A. PreCheck” security line at the airport).
Mexico also seeks more favorable treatment for Mexican citizens with advanced skills seeking visas to work temporarily in the United States.
Needless to say, making it easier for Mexican trucks and Mexican workers to get into the United States isn’t exactly what Trump campaigned on. But that’s the kind of concession that may be needed to get a trade deal.
Is There a Chance Nafta Completely Blows Up?
There is — though not necessarily in catastrophic fashion.
Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics, laid out a possibility in which the Trump administration does eventually withdraw from Nafta, but in a context in which it has worked out separate deals with Mexico and Canada that maintain most of the trade arrangements codified in Nafta.
President Trump and his advisers have often spoken of a preference for bilateral deals instead of big multicountry trade deals. It is potentially a pathway for Trump to be able to proclaim that he ended a trade deal he assailed on the campaign trail, without wrecking the economy.
Even that wouldn’t necessarily be painless, however.
“It would be like Humpty-Dumpty,” Mr. Hufbauer said. “There will be firms and communities in the U.S. that will be adversely affected, that will close down if you disrupt these supply chains. That won’t make for good newspaper coverage, and presumably the Trump team will want to avoid that.”
Just How Urgent Is Renegotiating Nafta?
Campaign promises aside, even some people who have been opposed to Nafta and other trade deals don’t view this as a first-order priority. U.S. trade with Canada is reasonably well balanced, and the trade deficit with Mexico is smaller than that with some giant Asian economies.
Robert E. Scott, the director of trade and manufacturing policy at the liberal Economic Policy Institute, sees more to be gained by rethinking the trade relationship between the United States and China, Japan, South Korea and even Germany. “Those are accountable for 80 percent of trade-related job losses over the last 20 years,” he said. “To me, Nafta is not a top priority.”
