In April 2017, President Trump considered an executive order to withdraw the US from NAFTA, the North American Free Trade Agreement. The decision seemed rushed and ill-informed and spelled disaster for manufacturers operating factories. Thankfully, the president backed away from the executive order stating he would renegotiate the trade agreement instead, but how will renegotiating affect the better parts of NAFTA?
Most people can agree the trade agreement needs work, but will it affect the resulting perks such as Mexico’s IMMEX program, lower prices, or increased economic growth?
The IMMEX Program
For manufacturers from Canada and the US, the IMMEX Program is one of the best things to come from NAFTA. It allows tax and duty-free material imports to come into Mexico. American manufacturers (with factories in Mexico) can receive materials from anywhere in the world. This has greatly reduced the cost of manufacturing. The Mexican government does have rules governing IMMEX, such as a mandated time frame during which goods must be finished and exported, and overall the program has been a huge success.
In early May, the Trump administration notified Congress that new negotiations have begun and that negotiations will begin with Canada and Mexico on or around August 16th. There are few details on specifics, but remember Trump has called NAFTA the “worst trade deal maybe ever … “ Could this spell disaster for factories in Mexico, which are already utilizing the benefits, or new businesses that may want to be included in IMMEX?
Short answer: No.
Long answer: Most of the foreign manufacturing plants and factories in Mexico are owned by people in the United States. Trump doesn’t have the authority to remove IMMEX because it’s offered by the Mexican government, and his administration is unlikely to attack IMMEX because it’s done little to sabotage the American worker. America’s manufacturing output is up 30 percent since 2009, and more than 740,000 new workers have been hired on American soil. The LA Times writes, “The bottom line, say economists and company executives, is that what’s good for Mexico’s factory workers is good for some U.S. workers too.”
Reduced Prices and Interest Rates
One of the best things about NAFTA is that it reduced prices on everything from importing oil to food. After implementing NAFTA, the USA significantly reduced its dependency on oil imported from the Middle East. Receiving oil from Mexico and Venezuela is cheaper, and we have better relationships with those countries. As far as food is concerned, importing low-cost veggies, fruit, meat, and more are a direct result of NAFTA.
Although negotiations are nowhere near shored up, it does seem the Trump administration is borrowing from the TPP (Trans-Pacific Partnership). Trump has heavily criticized TPP, yet his administration’s proposed changes are very similar to the failed trade deal. It’s quite possible prices may rise due to increased environmental and workplace regulations, but Republicans have only done the bare minimum in regards to protective laws. It’s unlikely corporations will be adversely affected, and hopefully, that will protect regular people from higher costs too.
Since its inception, NAFTA has directly contributed to 0.5 percent domestic economic growth per year. Mexico President Nieto is willing to work with the administration, stating that “Globalization generates more benefits than harm … “ This economic up growth is something farmers and automotive manufacturers truly need. It came at a time when their businesses were failing, but because of the trade agreement, they are currently thriving.
Trump’s main trade negotiator, US Trade Representative Robert Lighthizer, told lawmakers (in a testimony to Congress) “that he would seek to first do no harm to an agreement that he acknowledged as important for American farmers and industries.” In fact, the administration seems very moderate in this regard, which should lend hope that NAFTA will see some positive changes, but nothing that will destroy the current economy, but not enough to satisfy the environmental regulations the left was hoping for.