Study: Mich. most at-risk state in NAFTA negotiations
Washington — Michigan is the state that is most at risk of suffering economic losses due to President Donald Trump’s push to renegotiate the North American Free Trade Agreement, according to a study released Wednesday by the Fitch Ratings credit agency.
The study found that Michigan would be most harmed by changes to NAFTA being negotiated now by officials from the Trump administration and their counterparts from Canada and Mexico because its economy is “the most interconnected of all U.S. states with Canada and Mexico.
“Potential risks include lower sales and income tax revenues, which would likely transfer to localities through curtailed state revenue sharing and lower school funding,” the study said. “The tax bases and income tax collections of its most export-dependent localities, particularly those in the Detroit-Warren-Dearborn area, would also be affected.”
Michigan sends 43 percent of exports to Canada and 22 percent to Mexico, according to the study. The state received 36 percent of its imports from Canada and another 36 percent from Mexico. The Detroit-Warren-Dearborn metro area sent $15 billion in exports to Canada and $17 billion in exports to Mexico in 2015.
The authors of the study said they studied the data on the potential economic impact of the NAFTA talks by factoring everything from minor changes to the trade deal that could still result in lengthy renegotiations, to a potential unilateral U.S. withdrawal that they said would cause major trade distributions.
“The Trump administration is taking a tougher line on trade policy and appears willing to reconsider long-held beliefs about the benefits of foreign trade,” the study said. “The decision to renegotiate NAFTA signals a readiness to revisit longstanding agreements with key trading partners.”
U.S. Sen. Debbie Stabenow, D-Lansing, said in a statement that the Trump administration has to walk a fine line if it intends to make big changes to NAFTA.
“Any changes to NAFTA need to lead to an improvement in our quality of life and higher wages for Michigan families, not a race to the bottom,” said Statebow, who has previously said she supports efforts to “modernize” NAFTA. “The goal must be to export our products, not our jobs."
Stabenow has previously pushed the Trump administration to “focus on stronger trade enforcement, combating currency manipulation, enacting strong and effective labor and environmental rules, and updating provisions related to the new technology economy” in its talks with Canada and Mexico.
Michael D’Arcy, a director in Fitch’s US Public Finance group, said Trump has made clear that he is intent on drastically altering the trade relationship between the U.S. and its neighboring countries.
“Even before taking office, President Trump and his cabinet nominees struck a decidedly different rhetorical tone on trade than their predecessors,” D’Arcy said in a statement. “While many details of the Trump administration’s policy shifts remain unclear, current regional exposure to trade and border traffic with Mexico and Canada can illustrate where federal policy change could have the greatest impact.”
Hoyt Bleakley, associate professor of economics at the University of Michigan, agreed with the analysis that Michigan is at risk for economic losses if trade with Canada and Mexico are curtailed.
“The manufacturing industries in Michigan and neighboring states depend an awful lot on intermediate inputs imported from Mexico and Canada,” he said in an email. “If the preferential treatment of such inputs at the border were to end, perhaps production in this area might be able to partially adapt in the long run. However, there would be significant disruption of production chains as well as a reduction in competitiveness in the short and medium terms.”
The Trump administration is pushing for wholesale changes to NAFTA, enacted in 1994 to create a free-trade zone between the U.S., Mexico and Canada. It says terms of the deal have allowed trade deficits with neighboring countries, especially Mexico, to balloon.
On the campaign trail last year, Trump said he would end the trade pact with Canada and Mexico and slap a 10 percent to 35 percent tariff on vehicles and parts made in Mexico that are imported into the U.S. if the NAFTA renegotiation is not a success. Critics have said that could add $5,000 to $15,000 to the price of a car in the U.S.
Some made-in-America hawks have pushed the Trump administration to advocate for a toughening of requirements for parts made in the U.S., Canada or Mexico to qualify for duty-free treatment. The current threshold is 62.5 percent of parts; some have called for that to be raised to as much as 90 percent, or moving to a system involving nation-specific requirements.
The next round of NAFTA talks have been scheduled for Sept. 1-5 in Mexico, with a following round set for Canada in late September and a return to the U.S. scheduled for October.