As the
headlines around NAFTA and the negotiations thereof continue their steady drip
into the mainstream media, a new study has suggested that many of the states
that overwhelmingly voted for Donald Trump could actually have the most to lose
if negotiations fail to come to a compromise. Case in point, Michigan, where
trade is 38.9% of the gross state product. Looking at the diagram below, you
can see that Michigan’s top import trade partner is
Mexico and its top export trade partner is Canada. The terms of trade mostly derive
from the automobile industry, where nine out of Michigan’s top ten exports and nine of its top ten imports were related to auto
manufacturing. Simply put, Michigan buys a lot of auto parts from Mexico and
sells a lot of cars to Canada.
NAFTA has helped to
facilitate free trade between the U.S., Canada and Mexico because conducting
business with nations in close proximity has many advantages. For example, a
typical good imported from Mexico to the U.S. is made from parts that
are up to 40% American-made (compared to 5% American-made with Chinese
imports). However, if the trade agreement were to sour, vehicles would then
become more expensive to produce as the cross-border supply chains for finished
products kinks. As we learned in class, the gains from offshoring would then
diminish and that increased cost of production would be passed along to the
consumer.
That being said,
should states like Michigan be in favor of Trump’s
promise to get rid of this trade agreement?
References:
It seems that eliminating NAFTA would harm our terms of trade in many states far more than any benefit that could be derived from it. The elimination of NAFTA in general has been shown to be a terrible idea, but minor tweaks to it may be necessary. It is interesting to see the amount of states that have Canada or Mexico as their largest exporting partner. Eliminating NAFTA would hurt the businesses that benefit from this trade and lead to a decrease in the growth of the economy, and likely a reduction of employed laborers in those industries. While it seems unlikely that NAFTA will come to a complete end, it is a scary idea.
ReplyDeleteI think it is important to note that up to 40% of the production of imports from Mexico are made with American parts. This is the type of information that seems to be lost to the average consumer, or the fact that Canada and Mexico do import our goods as well. It is not simply a one way push of goods. The American public is simply unaware of this, and should not be condemned but rather informed.
To my knowledge trade benefits someone while at the same time it creates a problem for others. However in general international trade has taught that countries that has traded the most through FTA has significantly grown their economy over time. These countries include Germany, Italy and even japan. It is important for trump to make statistical analysis of restricting trade such NAFTA, and measure its current position and possible expectation.
ReplyDelete