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As the Trump Administration works to modernize the North American Free Trade Agreement (NAFTA), American companies of every size, sector, and state have been reassessing the agreement’s importance.
We’ve heard a great deal from American farmers and ranchers, whose exports to Canada and Mexico have quadrupled under the agreement. Understandably, U.S. agricultural producers are keen to “do no harm” to an agreement that provides them with outstanding access to two critical markets.
Service providers have also been singing NAFTA’s praises. Firms in fields such as audiovisual, software, engineering, banking, insurance, and other subsectors sold a whopping $86 billion worth of services to Canada and Mexico last year. Many are enjoying double digit sales growth.
But the chief beneficiary of the NAFTA is hidden in plain sight: It’s American manufacturing.
Consider these simple facts:
- Exports: Canada and Mexico are the top two markets for U.S. exports of manufactured goods, which have tripled under NAFTA (from $129 billion in 1993 to $446 billion in 2016). Our North American neighbors buy more “made in the USA” manufactured goods than our next 10 largest export markets combined, according to the National Association of Manufacturers (NAM).
- Growth: Canada and Mexico are our top growth markets. In dollar terms, U.S. exports of manufactured goods to Mexico increased by $91 billion in the 2009-2016 period; for Canada, sales expanded by $56 billion. No other market has delivered such dramatic growth in U.S. sales.
- Jobs: “U.S.-manufactured goods exports to Canada and Mexico alone support the jobs of more than 2 million men and women at more than 43,000 manufacturing firms across the United States,” according to the NAM.
- Small Business: More than 40,000 small and medium-sized manufacturers export to Canada and Mexico, according to the U.S. Department of Commerce. No other markets are so important to America’s smaller manufacturers, and many more such firms sell inputs and components to larger manufacturers that in turn export to Canada and Mexico.
NAFTA has contributed meaningfully to the expansion of U.S. manufacturing in recent years. According to economic data from the Federal Reserve Bank of St. Louis, U.S. real manufacturing output has risen by approximately 75% over the past 25 years.
What are the manufacturing sectors that depend on NAFTA?
Autos and auto parts
Automakers and auto parts suppliers are America’s largest manufacturing sector, and they’ve enjoyed robust growth thanks to NAFTA. U.S. auto production has more than doubled from 5.6 million vehicles in 2009 to 12.2 million vehicles in 2016, according to a report from the American Automotive Policy Council.
Job creation has been robust, the report adds: “Automaker and auto supplier employment in the U.S. increased by nearly one-half from 2011 through 2016, adding nearly 130,000 U.S. jobs.”
This sector is also America’s largest exporter, and worldwide exports of U.S.-built vehicles have more than doubled since NAFTA entered into force to approximately two million today. Nearly half of U.S. exports of passenger cars and light trucks go to Canada and Mexico.
Exiting NAFTA or introducing extreme “rules of origin” that would render it unusable to industry would throw a huge wrench into the gears of the U.S. auto sector. Restoring the tariffs and other trade barriers that preceded NAFTA would cut the sector’s supply chains into ribbons. It would create a powerful incentive to move jobs overseas and put American workers out of work.
Food and beverage
At the crossroads of U.S. manufacturing and agriculture, this sector has benefitted handsomely from NAFTA. As the American Farm Bureau Federation (AFBF) writes:
Nearly half — 45 percent — of the $39 billion in processed food exports [in 2015] went to Mexico and Canada. Processed food exports to our NAFTA partners, which were valued at $3.3 billion in 1993, have grown by more than 400 percent since the inception of NAFTA.
That growth has led to job creation, the Farm Bureau adds: U.S. food and beverage manufacturers “accounted for 16 percent of the value of shipments from all U.S. manufacturing plants. These plants employed more than 1.5 million workers in 2015” or about 14% of all U.S. manufacturing employment. In some states, this sector accounts for a much larger share of factory jobs, as in Nebraska (36%), Arkansas (29%), or Iowa (24%).
NAFTA “eliminated nearly all tariffs on processed food and beverages,” the AFBF adds. “These tariffs had been as high as 20-40 percent on some products prior to the agreement’s entry into force.” Abandoning NAFTA would take us back to that unhappy past and lead directly to lost exports and lost American jobs.
Textiles and apparel
While 97% of the clothing Americans buy is imported, clothing made in Mexico and exported to the United States under NAFTA contains a great deal of U.S. content. As Steve Lamar of the American Apparel and Footwear Association explains:
Mexico has emerged as a top U.S. export market for U.S. textiles. More than one-third of all U.S. yarn and fabric exports are sent to Mexico, where many of them are incorporated into clothing. If we add in Canada, that number jumps to nearly 50%...
The garments we import from China, Vietnam, and elsewhere in Asia don’t contain as many U.S.-made yarns and fabrics as those made in Mexico and other Western Hemisphere free trade agreement partners.
In other words, U.S. yarn and textile manufacturers depend on NAFTA and the Mexican market. Lamar adds: “Scuttling NAFTA will unravel many of these Western Hemisphere supply chains, threatening hundreds of thousands of America’s textile and apparel jobs.”
In sum, NAFTA has delivered substantial benefits to U.S. manufacturers, who have boosted export sales significantly thanks to the agreement. Modernizing NAFTA makes sense, but threatening to withdraw from the pact or incorporating strict new rules to make it unusable would endanger American jobs in factories from the Atlantic to the Pacific. We can’t let that happen.