Fraser Forum

Trump continues to hammer NAFTA, and if elected, could likely terminate the agreement

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Republican presidential nominee Donald Trump has been a relentless critic of NAFTA since the beginning of his presidential campaign. His official position is that he will demand a renegotiation of the terms of NAFTA to get “a lot better deal for American workers” if he’s elected president.

He has characterized NAFTA as the worst trade deal ever signed in the history of the United States and one of the worst trade deals ever signed anywhere in the world. Moreover, he’s stated that if he doesn’t get a satisfactory renegotiation of NAFTA, he will pull the U.S. out of the agreement.

Trump has been completely vague about what specific changes he would seek in any renegotiation of the agreement. He has also stated that he won’t let U.S. companies move to other countries and lay off workers without “consequences.” Again, he has not been specific about how he would discourage outward foreign direct investment by U.S. companies.

While there has been some debate about whether Trump, as president, would have the authority to renegotiate NAFTA without consulting Congress, most trade experts believe that any president would have enormous discretion to do so. They also believe that a president could unilaterally terminate NAFTA or any other free trade deal—although a court would likely have to decide if the president had that authority.

It’s tempting to dismiss Trump’s rhetoric, since he’s neck-and-neck in the polls with Hillary Clinton who has not, at least to date, been outspoken against NAFTA. However, Trump’s position on NAFTA specifically, and free trade more generally, seem to be broadly in tune with American public opinion.

For example, in a recent poll, almost two-thirds of Americans said they favoured more restrictions on imported goods instead of fewer, and a large majority said they favoured policies protecting domestic jobs over lower prices. A plurality of Americans said that NAFTA has been bad for the U.S. economy.

If there’s a saving grace to the Trump criticisms of NAFTA and the unfavourable U.S. public opinion about the agreement, at least from Canada’s perspective, it’s that most of the specific concerns and criticisms have been directed at Mexico. Particular note has been made of the U.S. merchandise trade deficit with Mexico, which over time swung from a US$1.7 billion surplus in 1993 (the year before NAFTA was implemented) to a US$61 billion deficit in 2015. By way of comparison, the U.S. trade deficit with Canada was around US$15.5 billion in 2015.

A second saving grace is that the issue of trade ranks relatively low in the set of issues tested in the poll. On the other hand, the fact that many Democratic voters hold negative views of free trade generally, and NAFTA specifically, suggests that if elected, Clinton will not be a champion of closer economic integration, even in the Canada-U.S. context. Important potential trade initiatives such as regulatory harmonization between Canada and the U.S. are unlikely to be promoted by the new U.S. administration. Furthermore, one might anticipate more frequent applications of U.S. trade legislation against its trading partners, including Canada, with a resulting increase in bilateral trade disputes. In short, the U.S. presidential selection process has been bad news for the future of North American economic integration.

Many economists believe that the extensive and deep cross-border supply chain linkages characterizing many North American industries are not strictly a consequence of NAFTA and were emerging prior to the implementation of the agreement. Nevertheless, tariff-free movement of semi-processed goods across national borders clearly encourages the vertical supply chain linkages that, in turn, promote productivity improvements in key industrial sectors such as transportation equipment. In this regard, it’s not too late, and certainly not too politically fraught, for Canadian politicians and business leaders to highlight some basic facts surrounding the North American production system for the benefit of the American public and U.S. politicians.

In particular, it might be noted that a substantial percentage of the goods imported from Mexico and Canada embody value added that was created in the U.S. For example, it’s estimated that 40 per cent of the content of U.S. imports from Mexico and 25 per cent of the content of U.S. imports from Canada are of U.S. origin. Canadians might also highlight estimates by economists indicating that NAFTA has had a positive (albeit relatively modest) impact on job-creation and GDP growth in the U.S. and that new export-related jobs in the U.S. pay substantially more, on average, than do those focused on domestic production.

Unfortunately, at the present time, no prominent U.S. politicians are stepping forward to address the mounting political attacks against NAFTA. 


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