One of President Donald Trump’s key plans was to renegotiate the North American Free Trade Agreement (NAFTA), since he believes it poorly benefits the USA. This is not the first time we’ve heard that NAFTA was a bad idea. Congress argued against it before it was implemented in 1994. Though the main principle would be beneficial for the three participating countries (Canada, Mexico, and the USA); fears were aimed at companies moving their factories abroad and thus eliminating jobs.
To some extent, this has happened. Automotive companies like GM, Ford, and BMW have opted for building their factories in Mexico as manual labor is cheaper, generating more jobs. This affected the US – though not as much as initially thought – and Canada, which have reduced their automobile production from 15.8 million and 2.7 million to 11.4 million and 2.4 million, respectively.
Furthermore, because taxes on imports and exports between the three countries have lowered, it is cheaper to manufacture items abroad and then import them into the US than produce them in the US in the first place. This has led to the loss of manufacturing jobs that Congress feared. However, other industries, such as the trucking industry, have benefitted from NAFTA. Truckdrivingjobs.com states that NAFTA has caused the trucking industry to draw in more than $89 billion dollars in revenue. With further deregulation and reduction in taxes, this could increase even more.
Nevertheless, because of President Trump’s eagerness to change the rules of play on NAFTA, this may not be possible and the trucking industry would be affected. By increasing taxes, truckers may gain an essentially insignificant net positive for Canadian and Mexican goods being imported. Truckers would then exchange their goods at the border rather than enter the US, where the exchange rate between currencies would cost them more for goods and services. The economic repercussions could then affect not only truck drivers but other industries reliant on them.
Even though President Trump insists NAFTA has been detrimental to the economy, the opposite is actually true. Though jobs have been lost to cheaper labor, production of American cars in Mexico has reduced the cost of manufacturing automobiles; which in turn has allowed the US to compete with other markets like China. By importing cars from Mexico rather than China, the Mexican economy booms, cars are cheaper to purchase, and China is denied another market in which to trade its goods.
Though the current iteration of NAFTA grants more benefits to Mexico and Canada, the US should not try to levy a new agreement completely in its favor. Maintaining the current status quo is necessary to aid our neighboring countries further develop their economies while goods are kept low cost.
