What Renegotiating NAFTA Could Mean for U.S. Manufacturers

GettyImages-106568820-compressorPresident Trump announced on his first day in office that he would begin to start renegotiations of the North American Free Trade Agreement (NAFTA). While the impacts of NAFTA can vary by sub-sector and operations of each organization, many manufacturers say the trade deal benefits them through low-cost labor, material sourcing and open markets.

In fact, a study released this month by the Center for Automotive Research said that NAFTA has had a positive benefit for the U.S. auto industry, supporting high-wage jobs and making North America a more attractive place to do business. The report stated that while there are opportunities to improve the trade agreement provisions, a wholesale withdrawal could “set in motion a series of unintended consequences that would constrain future growth of the U.S. automotive industry.”

“While there are opportunities to improve the trade agreement provisions, a wholesale withdrawal could “set in motion a series of unintended consequences that would constrain future growth of the U.S. automotive industry.

Trump hasn’t given many details about what he is seeking from a renegotiation, but it could be “a long and politically messy process” that could take “months, or more likely years” to set new terms, since NAFTA has no formal provision for re-negotiation. Trump has called NAFTA “the worst trade deal in the history of this country” and said that he will engage Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau in the next 30 days.

American manufacturers are urging Trump to “back off” from NAFTA threats, saying that free-trade agreements can help grow the U.S. economy and create jobs. Scott Paul, president of the Alliance for American Manufacturing, has argued in favor of tougher trade remedies to combat Chinese imports, but said the solution is to be more proactive on enforcing existing trade rules. “I’m of the belief that there is a lot of space between our current policy and an all-out trade war,” said Paul.

Manufacturing groups said their first message to Trump is to do no harm to American exports. Linda Dempsey, vice president of international affairs for the National Association of Manufacturers said there are at least 2 million manufacturing jobs in the country that are dependent on trade relationships with Canada and Mexico. “And so as we go forward, we certainly don’t want to put those jobs in jeopardy,” said Dempsey.

This past summer, the National Association of Manufacturers (NAM) took to social media to dispel what it said were “myths” about trade agreements. Dempsey said that criticism of NAFTA was ” an enduring but deeply flawed myth” and that FTAs are market-boosters for U.S. manufacturers because they “promote fair trade by leveling the playing field.”

Meanwhile, the Wharton School of Business at the University of Pennsylvania said that scholars continue to disagree on the impact that NAFTA has had on jobs and economic growth. Wharton noted that while the costs of NAFTA are highly concentrated in specific manufacturing sectors like automotive (where losses could be significant for some firms), the benefits of the trade pact (including lower prices for things like electronics and clothing) are distributed across the U.S. economy. Walter Kemmsies, managing director and economist at JLL covering Ports & Airports and Global Infrastructure said access to Mexico offers American manufacturers a big advantage. “You have a cheap labor force, a global geographic advantage, a rising middle class. It’s a good place to make stuff,” said Kemmsies.

What many manufacturers fear most are large tariffs that Trump has threatened, including a 35 percent across-the-board tariff on imports from Mexico. Ford Motor Company CEO Mark Fields said corporate strategies are reliant upon existing trade agreements and that cross-border material sourcing, assembly and production are ingrained in the business models. “Obviously, Congress and the president could always look at everything, but they have to keep in mind that both production and supply chains are deeply integrated into all three countries and that that integration also supports a lot of American jobs,” said Fields.