How to View the Threat of No More NAFTA
August 21, 2017
America Leans Towards Protectionism in a Globalized Economy
We already know the current administration leans protectionist. Within weeks of his inauguration, Trump walked away from the TPP, and has pulled no punches in his rhetoric on NAFTA: “NAFTA has been a disaster for our country,” “…the worst trade deal in the history of the world,” “I see the carnage that NAFTA has caused,” etc.
According to the New York Times, the current administration believes “a product made in Mexico and sold in the US represents a theft.” One U.S. Factory Goes Global, While Trump Shrinks the World is a terrific account of what will happen to small businesses all over America if NAFTA is abandoned.
As Trump champions bringing jobs back to the U.S, abandoning NAFTA could eliminate the jobs already here.
A trade war will raise the price of U.S. exports, raise the price of U.S. manufacturing, and negatively impact the U.S. production economy already in place.
Sure, it sounds simple. We have to make things in America if we’re going to create jobs. But what the administration does not take into account is the reality of manufacturing and the global supply chain.
Businesses find savings and diversity in global supply chains. Consumers benefit by getting lower prices and more selection. Without NAFTA, we will pay more for imports from Canada and Mexico – our two largest trading partners – and earn less from sales across the border. That’s ⅓ of all our exports.
Backing off of trade agreements will only serve to make the U.S. a less competitive player in the global economy. After the U.S. backed off of the TPP, Japan simply entered a trade deal with the EU directly. Now American exports to the EU are vulnerable to higher tariffs than their Japanese competitors. The march toward increased globalization will continue with or without us. Dropping out of the race will only serve to send more jobs overseas.
Big Ass Fans (yes, that’s their real name), the subject of the New York Times article mentioned above is a small business with 700 employees. They have no domestic sources for certain key components in their Big Ass Fans. Should the U.S. withdraw from NAFTA, the company would likely not expand in Kentucky, where they are headquartered, but in Malaysia, where they can service Asian customers from the same time zone.
But there’s good news.
Canada, for one, has a ‘circumnavigation strategy’. Its plan is to bypass Washington trade policies altogether and go straight to the state and local level. Canada is not only dedicated to preserving NAFTA, they are already forging relationships with mayors, governors and members of Congress reminding them of the point of NAFTA – that what’s good for Canada, is good for the US, too.