NAFTA is Dead: Trump Seeks Separate Agreements With Mexico and Canada

Trump proposes NAFTA by another name. But it won't look like NAFTA. He wants tailored bilateral trade agreements.

President Trump says Mexico and Canada are ‘very different countries’. That is true of any two countries, even countries in the EU. And on that note Trump Raises Prospect of Separate Trade Deals With Canada, Mexico.

“I wouldn’t mind seeing Nafta where you’d go by a different name... a separate deal with Canada... a separate deal with Mexico,” Mr. Trump told reporters.

“These are two very different countries,” Mr. Trump said, adding that in his opinion the U.S. loses “a lot of money with Canada” because of the existing framework, and loses “a fortune with Mexico.”

NAFTA is Dead

The Globe and Mail proclaims NAFTA is Dead and Canada Should Move On

NAFTA – at least as we know it – is dead. Donald Trump just killed it.

The reckless and crippling 25-per-cent tariff on steel and 10-per-cent tariff on aluminum that the U.S. President’s administration just used to bludgeon Canada and Mexico (not to mention the entire European Union) is the murder weapon.

When someone keeps threatening to smash you, as Donald Trump has since he announced his candidacy for president, it usually pays to take them seriously. Today, even the most committed somnambulist can’t ignore what the U.S. administration has done.

How can we for a moment believe that a renegotiated NAFTA can protect us from further unwarranted and equally ferocious economic attacks from our putative partner? The risible pretext that U.S. Commerce Secretary Wilbur Ross trotted out for the tariffs was “national security,” because, as he put it, “without a strong economy, you can’t have strong national security.” We can expect this elastic interpretation to be the standard approach of the Trump administration to any disputes under a renegotiated NAFTA.

The only negotiating stance that works against Donald Trump is the ability and willingness to walk away.

Disputing NAFTA

Every time I mention trade, at least one misinformed reader blames NAFTA for the loss of manufacturing jobs. It happened again yesterday. And it's nonsense.

NAFTA Not Responsible For Loss on Manufacturing Jobs

Manufacturing jobs peaked in June of 1979, nearly 15 years before NAFTA. Also note that manufacturing jobs rose for the first eight years after NAFTA started.

How many times do I have to post that chart before people look at it?

Manufacturing Share of Employment

As a percentage of employment, manufacturing's decline started in 1960 for Both the US and Canada.

Balance of Trade

Trump moans the "US loses a fortune" with Mexico. The above chart shows Trump is wrong.

Moreover, a cheap supply of parts helps keep auto prices down. Consumers spend the savings elsewhere. Jobs are created, not lost, in the process.

Dear NAFTA Bashers: You Need New Charts

For a collection of still more charts on the absurdity of NAFTA bitching, please see Dear NAFTA Bashers: You Need New Charts.

True Source of Trade Imbalance

To understand the origin of trade imbalance, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

Trump is clueless about trade and barking up the wrong tree.

Mike "Mish" Shedlock

Comments (20)
No. 1-20
flubber
flubber

Anecdotal story....Our manufacturing company in the SE produced a major component used by a Fortune-500 company with the majority of applications in the chemical processing and oil refinery business. We produced the part for 22 years and felt that our process was so refined that no other firm in the USA could beat our pricing. We lost the job to a firm in Mexico in 2009. Since then, the whole assembly is manufactured in China. I cannot say that the loss of the job to Mexico was due to NAFTA.

thimk
thimk

good point; as this wiki article alludes to; it was not nafta that caused more manufactured goods to be exported into the US but free trade zones created in china and mexico that US companies outsourced/relocated . These areas offer a company low input costs(i.e. cheap labor ,in the case of mexico ;peso devaluation, no import duties. ) Simply put , US companies/manufacturing moved operations to other countries.To blame nafta is a fallacy.

Webej
Webej

Trump is an incorrigible ignoramus. When you are getting more than you are producing and shipping, you are not losing. Of course you are building up liabilities, in this case held in your own currency by other parties who will just have to trust you (ha ha). Purportedly free trade and business-minded, how will war help a situation in which Canada and the US trade various steel products (yes Canada also imports steel products from the US) across a 7000 km border on the basis of price, convenience, and quality all along that border. It doesn't get much more favorable than that.

Malcom
Malcom

Canada had the advantages of public healthcare and a low loonie for a long time, post NAFTA. We came to rely rather heavily on both and became too complacent in our competitive outlook.

Kinuachdrach
Kinuachdrach

"Consumers spend the savings elsewhere". True -- but only for those consumers who still have jobs. The academic theory implicitly assumes that workers who lose their jobs due to imports will find equivalent (or better) jobs producing exports. Nice theory -- but it does not conform to the real-world experience of declining labor force participation in the US.

Of course, there are many more factors in play in a real economy than simply treaties & tariffs. These are government statstics, so some of the trends lie in changing definitions -- from the 1980s onwards, manufacturers began to contract out lots of people (eg canteen staff, janitorial staff, accounting staff, legal staff) who were previously directly-employed "manufacturing employees". And let's not ignore the Big Kahuna -- the slope of the employment line on the chart Mish uses changed around 1970, coincidentally when the EPA was set up and big-time over-regulation got going.