Hundreds of thousands of U.S. jobs would be lost, especially in heartland states that backed Trump
Imagine the scene a year from now: The U.S. unemployment rate is climbing. Crops in the heartland are rotting. Consumer prices are rising. Manufacturers are moving abroad. This vision isn’t so far-fetched when you consider the increasingly precarious state of play in the effort to modernize the North American Free Trade Agreement.
Nafta supports millions of American jobs, and with thoughtful updates it could create millions more. Renegotiations with Canada and Mexico launched in August, but the White House continues hinting it may withdraw the U.S. from the trade agreement altogether. These threats must be taken seriously. Quitting Nafta would be an economic, political and national-security disaster.
How might the calamity unfold? Say the Trump administration pushes ideas that are opposed vociferously by the U.S. business and agriculture communities, as well as by the Canadian and Mexican governments. Such proposals might be to end the agreement’s investment protections, add strict rules on domestic content, or impose a five-year sunset clause.
Those proposals would all but guarantee that negotiations break down—in which case, American officials insist, they will start to pull the U.S. out of the existing deal. That is within the White House’s authority: Any of the three Nafta parties may withdraw from the agreement at six months’ notice, which the president is empowered to provide.
Mexico would respond immediately, perhaps starting with its applied most-favored-nations tariff on grains, which ranges from 15% to 20%. That’s the hefty duty now levied on corn, wheat and other products from countries such as Argentina and Brazil. In contrast, Nafta allows American farmers to sell crops to Mexico duty-free. If Mexico slashed the external tariff to zero, it would be able to substitute billions of dollars in South American products for U.S. ones. Even if food from the U.S. remained slightly cheaper, years’ worth of harsh rhetoric has left Mexicans furious and willing to pay more to send a message.
That’s only one example of the broad and powerful effect pulling out of Nafta would have. Fourteen million American jobs depend on trade with Canada and Mexico, which are by far the U.S.’s largest export markets. Our North American neighbors buy more than $600 billion in U.S.-manufactured goods each year, more than the next 10 largest markets combined.
Thanks to Nafta, virtually all North American trade is tariff-free. After withdrawing from the deal, tariffs on all products would snap back to an average of 3.5% for the U.S., 4.2% for Canada, and 7.5% for Mexico—a terrible deal for all three countries.
The increased tariffs would hit American consumers and exporters in the pocketbook, but the losses would accumulate well before that. Supply chains would shift away from the U.S., as Canada and Mexico looked to their other free-trade partners, in Europe and Asia, for manufactured goods and food.
Hundreds of thousands of American jobs would be lost, and that’s a conservative estimate. Heartland states that voted for President Trump would be hurt most, and angry voters would know exactly whom to blame.
Beyond the trade retaliation and economic fallout, cooperation between the U.S. and Mexico in other areas would fall off. Today the two countries work closely on antiterror and antinarcotics efforts, and Mexico helps limit Central American migration northward. These efforts would end overnight.
In light of these well-established facts, you’d think that threats to withdraw from Nafta—or proposals that inevitably would kill the deal—should be off the table. But they aren’t. So here’s an unequivocal warning: Undermining Nafta would be a grave and costly mistake that would hurt the very farmers, manufacturers, workers and families this White House purports to protect. Americans should do everything necessary to avert this grievous self-inflicted wound.
Mr. Donohue is president and CEO of the U.S. Chamber of Commerce.