By Matthew Dickerson
As Congress begins the process of debating the United States–Mexico–Canada Agreement, President Donald Trump has repeatedly threatened to unilaterally withdraw from the North American Free Trade Agreement. Leaving NAFTA without a replacement in place would endanger economic growth, expose U.S. businesses to new taxes and impose significant costs on virtually every American.
NAFTA, which took effect 25 years ago, has been a roaring success for America, Canada and Mexico. Our northern and southern neighbors are the top two markets for American goods, accounting for more than a third of all exports, valued at $564 billion in 2018. These exports support millions of American jobs. NAFTA has also resulted in lower prices for American consumers by reducing tariffs.
Thanks in large part to tax reform and turning the tide on burdensome regulations, many of President Trump’s policies have helped launch an economic boom. Withdrawing from NAFTA would damage the economy and set back the significant economic progress of the last two years.
The economic recovery has created millions of jobs and driven the unemployment rate to historically low levels, to the point where the U.S. has more job openings than unemployed workers. As many as 14 million American jobs in all 50 states are supported by trade with Canada and Mexico. A number of studies have estimated that the impact of a unilateral U.S. withdrawal from NAFTA could cause up to nearly 2 million Americans to lose their jobs.
The Peterson Institute for International Economics found that “the most affected states (from withdrawing from NAFTA) are Arkansas, Kentucky, Mississippi and Indiana. The most affected sectors are autos, agriculture, and manufacturing (non-auto).”
The reduced barriers to trade brought about by NAFTA have significantly benefitted the U.S. agriculture sector. Between 1995 and 2017, the share of U.S. farm exports to Canada and Mexico doubled to 29.8 percent of the U.S. total. Reversing this progress by leaving NAFTA would have negative consequences in America’s heartland.
According to a recent study by the Farm Foundation and the Global Trade Analysis Project at Purdue University, beef exports from the U.S. to Canada could go from no tariff under NAFTA to a 24 percent tariff. Exports to Mexico would also face significant new hurdles, with pork and poultry facing a 71.1 percent tariff, dairy products a 31.4 percent tariff, and fruits and vegetables a 28.5 percent tariff. Overall, withdrawing from NAFTA could cause a $12 billion decrease in U.S. agricultural and food exports, resulting in the loss of more than 40,000 U.S. agricultural jobs.
Another study conducted for the Business Roundtable similarly found that job losses would disproportionately hurt the most vulnerable American workers: “Most of the job losses would affect workers holding lower-skilled occupations, including production workers in manufacturing and agriculture and lower-wage workers in services industries.”
Entrepreneurialism and innovation have led to unprecedented economic growth around the world, lifting the living conditions, prosperity and prospects of billions of people. A key contributor to this growth is the voluntary exchange of goods, services and ideas that free trade entails. Trade has led to countless tangible benefits for Americans.
What we need is more trade, not more barriers to opportunity such as tariffs. Congress should do its due diligence and evaluate the merits of the USMCA.
Prematurely withdrawing from NAFTA without a new agreement in place would entail considerable economic risk for American workers, consumers and businesses. It’s an option without an upside. And it would be a mistake the United States cannot afford.
Matthew Dickerson is a policy manager at Americans for Prosperity.
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