Opinion: A new NAFTA should make trade more free
Last week, President Trump notified Congress that he intends to sign a free trade agreement with Mexico, while leaving the door open for Canada to join the pact as well.
Negotiations to get Canada on board will continue over the next month. For now, let’s look at the proposed agreement—keeping an eye out for what’s good and what’s not so good—with the notion that it can be improved before it comes before Congress.
A new NAFTA should advance three primary goals: facilitating trade within North America, increasing productivity and competition, and modernizing NAFTA for the 21st century.
The old NAFTA contributed mightily in the first two areas. Since entering the pact in 1994, the three countries have made tremendous strides in manufacturing, innovation, and efficiency—especially in the automotive sector. As a result, U.S. manufacturers, who produced only $4.9 trillion (inflation adjusted) in goods in 1994, churned out roughly $6 trillion in goods last year—a 20 percent boost.
Despite claims that the U.S. has lost thousands of jobs due to NAFTA, the data say otherwise. We’ve actually gained more than 29 million jobs since 1994.
But what about this new agreement? So far, the White House has released a series of fact sheets laying out the primary proposals for agriculture, manufacturing, and modernization.
The two nations have agreed to keep tariffs on agricultural products at zero. They also agreed to not restrict American cheese products with geographic sounding names, such as parmesan and romano, that have become generic. Both of these efforts ensure that American farmers and ranchers will maintain their existing market access.
The story for manufacturing is less promising. NAFTA regulates the amount of North American material—currently set at 62.5 percent—that must be in an automobile for it to be considered of regional origin. The pact with Mexico increases that requirement to 75 percent. It would also require that 40-45 percent of those involved in the production process be paid $16 per hour or more.
While these changes may seem positive on their face, they can easily cause a hike in new car prices and discourage investment in the sector.
One of the primary goals of renegotiating NAFTA was to bring the agreement up to speed, so that it addresses the 21st century economy. After more than two decades of free trade, the agreement should be modernized to deal with increasingly complex issues such as digital trade and protection of intellectual property. From what we see in the fact sheets, it looks like the administration has made positive strides in this area, but more details are necessary to fully evaluate these changes.
The finish line for a new NAFTA is still far off. But as negotiations with Canada continue, it is important to remember the whole point of the process: to nail down an agreement that increases and eases trade in North America.
NAFTA should not be muddied with new regulatory barriers or restrictions that detract from the two decades of success from the agreement. In the end, Congress will have the final say and the Trump Administration should work to ensure members are fully informed to best represent the interests of all Americans.
Tori K. Whiting is the Jay Van Andel Trade Economist in The Heritage Foundation's Roe Institute for Economic Policy Studies.