Opinion: Reinforce U.S. economy through trade deal

Gary Wolfram

The U.S. economy has been fortunate to sustain strong growth the last two years despite global uncertainties such as trade wars, Brexit and Middle East conflicts.

Our country has managed near record low levels of unemployment while keeping inflation within the Fed’s target range of around 2%.

Can the economy sustain this growth? Or is a market correction about to take place? As Yogi Berra once said, “It is tough to make predictions, especially about the future,” but the U.S. can get ahead of some economic uncertainty by reinforcing the strength of its economy through ratifying the United States-Mexico-Canada Agreement.

President Donald Trump, Canada's Prime Minister Justin Trudeau, right, and Mexico's President Enrique Pena Nieto, left, participate in the USMCA signing ceremony, Nov. 30, 2018, in Buenos Aires, Argentina.

Free trade agreements like the North American Free Trade Agreement and USMCA are important to securing the economic foundations critical to success and growth. NAFTA offered tremendous benefits to the U.S. and to our northern and southern neighbors. According to the U.S. Chamber of Commerce, trade with Canada and Mexico today supports 12 million U.S. jobs. For 49 states, Mexico or Canada is one of their top-three merchandise export markets.

Canada and Mexico account for 40% of the growth in overall U.S. goods exports since the Great Recession, and trade with the two countries reached nearly $1.4 trillion in 2018.

U.S. services exports to Canada and Mexico tripled from $27 billion in 1993 to $96 billion in 2018.

A stable and amicable trade relationship benefits all parties. Uncertainty about the effect of a failure to conclude an agreement will cause manufacturers in the three countries to be more risk-averse and lead to less investment in new plant and expansion of existing facilities.

The Midwest manufacturing sector may particularly benefit from USMCA. Trade agreements with Canada and Mexico allow automakers to take advantage of best cost production and lower supply chain risk, ensuring automotive production remains in North America.

A survey of U.S. auto manufacturing executives found that more than 3/4 of automotive executives feel that the changes required by USMCA will have a positive impact on their individual companies in the long term, and more than half feel USMCA will lead to an increase in North American vehicle manufacturing and provide a net improvement for workers and consumers.

The Center for Automotive Research (CAR) has pointed out that Detroit’s exports to Mexico are greater in both absolute value and in share than those of any other U.S. city. CAR argues that failure to retain a free trade agreement with Mexico and Canada would result in the loss of 31,000 U.S. automotive and parts jobs, with Michigan suffering in particular.

Since the passage of NAFTA in 1994, agricultural exports to Mexico and Canada have grown by 450%. Canada and Mexico are now the most common destination for American agricultural exports with more than $43 billion in exports to those two countries in 2016.

In addition, passage of USMCA will secure America’s energy exports by maintaining Mexico and Canada as our top markets for crude oil and gasoline products.

As Adam Smith pointed out in his famous 1776 work, "An Inquiry Into the Nature and Causes of the Wealth of Nations," the wealth of a country is reduced when governments interfere with the ability of individuals to trade across borders. NAFTA and the USMCA are agreements that improve the ability of individuals in the countries of Mexico, Canada, and the United States to trade with one another. This will benefit the citizens of all three countries.

It is also important to realize that countries do not trade with one another.  Individuals in one country offer to trade with individuals in another country.  Thus trade agreements that minimize tariffs are also a reflection of individual liberty. For both political freedom and economic reasons, ratification of USMCA is important.

Gary Wolfram is the William Simon Professor of Economics at Hillsdale College.