Threats of NAFTA being terminated have loomed since President Trump was elected in November. Early this week Trump’s threat of dissolution was heard by Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto who called him asking for a meeting. On Wednesday it was announced that the leaders of Mexico and Canada will meet to renegotiate the terms and conditions. For this reason, Trump stated, “It is my privilege to bring NAFTA up to date through renegotiation.”
President Trump has expressed concern over the trade agreement for some time. In an interview with the Associated Press, he stated that NAFTA has massacred American manufacturing. First, many US companies moved to Mexico through NAFTA to score cheap labor. The Council on Foreign Relations reports that roughly 350,000 were lost since the agreement went into effect in 1994. Consequently, the American middle class suffered. Second, by increasing the use of low skilled labor in Mexico it lowered the wages of US workers performing the same labor. When the administration submitted a proposal for a restructured NAFTA, many were underwhelmed since the draft had most of the same principles intact.
Pros of NAFTA
While the agreement may not have been great for the American worker, consumers reaped a few benefits from NAFTA. As a result, since goods could move freely between North America prices decreased. This was a byproduct of lowered tariffs which was then passed on. In addition, the CFR reports that the GDP also increased by approximately 80 billion dollars. That alone grew the economy by .5%. Ultimately, it is theorized this partnership also improved relations between governments since money was on the line and cash is king.
As with anything there are pros and cons; NAFTA is no exception. It lowers prices, but costs jobs. It raises GDP, but lowers wages. It is a never-ending see-saw, but the negotiations saw end late Wednesday night. The White House released the statement, “The leaders agreed on the convenience of maintaining the North American Free Trade Agreement and working together with Canada to carry out a successful renegotiation for the benefit of all three countries.” Stay tuned to see how these yet to be announced changes will affect the US economy going forward.