In Unpacked, Brookings experts provide fact-based analysis of Trump administration policies and news.
THE ISSUE: President Trump has frequently voiced objections to the North American Free Trade Agreement (NAFTA) and signed an executive order prompting renegotiation of the treaty which began last month. Though the president blames NAFTA for contributing to factory closures and job losses in the U.S., the trade partnership with Mexico and Canada is critical to the health of the American economy.
The U.S. trades as much with Canada and Mexico as it does with Japan, South Korea, and the BRIC countries combined.
THE THINGS YOU NEED TO KNOW
- NAFTA is currently being renegotiated, and that’s important because the U.S. trades as much with Canada and Mexico as it does with Japan, South Korea, and the BRIC countries (Brazil, Russia, India, and China) combined.
- Trade with NAFTA nations is driven primarily by exporting manufactured goods like cars and airplanes, but also includes a growing share of educational, financial, and other service-based exports.
- Nearly every U.S. community relies on exports for jobs and economic growth, but what communities export depends on their industry base.
- In small towns and rural areas, 80 percent of exports remain in goods like manufacturing, agricultural, and energy commodities.
- In the nation’s 100 largest metropolitan communities where large banks, consultancies, and Universities are located, services are an increasing share of total exports. In 2016, services comprised nearly 50 percent of total exports from these top metropolitan areas.
- Even as the nation shifts from goods to services exports, manufacturing remains vital, and for U.S.-based firms to manufacture and export they need to be able to import intermediate goods.
- Take Michigan, the hub of the U.S. auto industry. Tens of billions of dollars’ worth of motor vehicle seats, ignitions, wires, and other parts flow into southeast Michigan to support local auto production. Essentially, to export price-competitive cars, Michigan must be able to import cost-competitive components.
- The importance of these integrated supply chains means that pulling the U.S. out of NAFTA would have been extremely bad for the U.S. economy, but luckily President Trump is not going to do that.
- Instead, we’re renegotiating the agreement, which in many ways makes sense, since NAFTA was last negotiated 25 years ago and a lot has changed since then.
- During this latest round of negotiations, NAFTA negotiators should focus on upgrading environmental standards, creating new rules for e-commerce, and ensuring labor standards that govern companies in all three countries have been updated to help workers benefit from trade.