New details on Nafta overhaul plan

Posted on 07/26/2017 by David Radke


Throughout his presidential campaign, Donald Trump made foreign trade a central focus of his election platform. This was somewhat uncharacteristic of a major presidential candidate, since trade policy had rarely surfaced as a significant issue in recent campaigns. Now in the Oval Office, the Trump administration is looking to promote new legislation that would redefine America's economic relationship with its closest neighbors and biggest trading partners around the world, with impacts that will certainly be felt through the trucking and transportation industry.

The New York Times reported July 17 that the administration had revealed its most detailed plan to date for how to overhaul the North American Free Trade Agreement, known as Nafta. Since 1994, Nafta has facilitated the relatively unimpeded flow of goods between the U.S., Canada and Mexico. The Trump administration's policies aim to curb some of that trade in an effort to protect American jobs and reduce federal subsidies.

A 17-page document listing the objectives of a Nafta overhaul included many new details and specific goals, some of which were summarized by The Washington Post:

  • "Improving the trade balance" between the U.S., Canada and Mexico.
  • Opening the door for greater trade litigation between Nafta nations.
  • Allowing the U.S. to impose broad trade barriers, like tariffs or quotas, that are currently banned under Nafta.
  • Fighting against protectionist measures in Canada and Mexico, particularly in agricultural products.
  • Adding enforceable labor and environmental provisions, including the right for workers to form unions and protection for endangered plants and wildlife.

On the whole, economists said these objectives, if implemented, would have the effect of limiting Nafta's current role as a free-trade agreement.

"It is very consistent with the president's stance on liking trade barriers, liking protectionism," Chad Bown, a senior fellow at the Peterson Institute for International Economics, said of the report. "This makes Nafta in many respects less of a free-trade agreement."

The Times also argued that some provisions in the newly released document "appear to send a signal to countries beyond Canada and Mexico." These curious inclusions name currency manipulation and subsidizing state-owned enterprises, issues that crop up more in trade with China than between Nafta members.

What if Nafta ends?

Throughout his election campaign and during his time in office, Trump made several suggestions that the U.S. would pull out of Nafta altogether. The new list of objectives seems to signal a more careful approach, but in public statements, the president has still not ruled out a complete withdrawal. 

If Nafta were to be effectively nullified by a U.S. withdrawal, it could have serious detrimental effects on the domestic economy, according to some analysts. Without Nafta in place, The Economist explains, trade policy would revert to rules established by the World Trade Organization. This would include imposing tariffs that would significantly drive up costs for many in agriculture and the automobile industries. Texas, the state that is the biggest trade partner with Mexico, would face a 3 percent tariff on goods that comprise 6 percent of its total economic output, a serious concern. Nebraska, Iowa and Michigan could also expect a large percentage of their economic output to be erased by tariffs, if Nafta were to face a full repeal.

For these reasons, most assume Nafta will remain in place at least in part, despite the Trump administration's stance. With the U.S. list of objectives now public, a 30-day review period must pass before formal negotiations between the three member nations can begin. Secretary of Commerce Wilbur Ross has said he hoped any revisions to the deal would be made by January 2018.

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