Column: Time to modernize NAFTA

Jeffrey Kupfer

Even as it dominates all the press attention, the back and forth tariff battle with China is not the only important trade issue on the table right now. Since Donald Trump took office, there have been seven rounds of North America Free Trade negotiations and a ministerial level discussion that recently concluded in Washington, D.C. While progress is reportedly being made, just last week, the president threatened once again to terminate the agreement. If that were to happen, it would be most unfortunate, both for the country as a whole and for individual states like Michigan that rely heavily on international trade.

According to the U.S. Chamber of Commerce, a NAFTA withdrawal would hit Michigan harder than most other U.S. states. That’s because almost 40 percent of Michigan’s economy depends on trade and over 62 percent of the state’s exports ($37 billion out of $60 billion) go to Canada and Mexico. Canada is Michigan’s largest trading partner by far, purchasing over $25 billion in oil and gas, petroleum, coal, minerals, transportation equipment and other products from the state in 2013, according to the Michigan Economic Development Corporation. Data from the U.S. International Trade Administration shows that the Detroit-Warren-Dearborn metro area was the 6th largest exporting area in the U.S. in 2016, exporting $42 billion worth of goods, which was two-thirds of Michigan’s total exports. The Detroit area was the largest U.S. metropolitan area exporter to Canada and the second largest to Mexico, trailing only El Paso, Texas.

And it’s more than just the value of the exports; it’s also the jobs. The export of goods from Michigan in 2015 supported more than 270,000 jobs, a 30 percent increase from six years earlier. Nearly 15,000 different companies exported goods from Michigan in 2015, and over 13,000 of those firms were small or medium sized. When you consider that about half of Michigan’s work force is employed by firms with less than 500 employees, you can see the significant impact of trade on the average Michigan citizen.

Michigan’s trade with NAFTA countries has risen dramatically over the past decade. From 2007 to 2017, Michigan grew its exports to NAFTA partners by nearly $7 billion, far outdistancing the next country on the list, South Korea, which had export growth of only $650 million. The stake of Michigan in NAFTA trade is clear, and the effect of its demise on Michigan’s economy would be profound.

Despite all the data demonstrating the positive impact of NAFTA on Michigan’s economy, President Trump continues to question the agreement’s value. While he is right that the agreement, which is over two decades old, could certainly benefit from some modernization, any sort of termination or full withdrawal would be extremely harmful, especially to the same people in Michigan who, pinning their hopes on Trump’s economic leadership, narrowly elected him in 2016.

As part of any modernization, Trump administration officials should push for the investor state dispute settlement system to remain intact. This mechanism – a private right of action before an independent, neutral arbitration tribunal – found in most trade agreements ensures that American companies are treated fairly in foreign investment disputes. Recently, over 100 members of Congress, including five from Michigan, wrote that ISDS “protections provide certainty for U.S. companies in all sectors, including U.S. energy companies that drill or operate pipelines or service stations in Mexico; U.S. railroads that operate on both sides of the U.S.-Mexican border; agriculture entities that maintain feedlots or processing or storage facilities; and U.S. services companies that maintain capital in Mexico to meet regulatory requirements or establish facilities.” Simply stated, ISDS is critical for protecting citizens and Michigan’s business operations in Mexico and Canada.

Michigan is known for its industry, manufacturing and trade. The state has a lot riding on what comes next for NAFTA because a U.S. withdrawal would level a real blow to its economy. Michigan policymakers, business owners and workers should all raise their voices and make sure that message gets heard loud and clear in Washington.

Jeffrey Kupfer is the former acting deputy secretary of the U.S. Energy Department. He is currently an adjunct faculty member at Carnegie Mellon University's Heinz College.