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Ways in Which Trump's NAFTA Renegotiation Will Change Trade

North American Free Trade Agreement Renegotiation

North American Free Trade Agreement or better known as NAFTA has been prima focus in the talks of all the American presidential candidates this year. Elected President of the United States of America Mr. Donald Trump has maintained throughout his campaign that he will be renegotiating the NAFTA, by either changing the policies or completely withdrawing from the deal. NAFTA is seen as a deal which is taking away jobs from the Americans. This has been the focus of Trump's presidential campaign throughout.

After being elected as the President, Donald Trump vowed to start renegotiating the North American Free Trade Deal at the swearing-in ceremony at the White House. Currently, around $1.4 billion worth of goods cross the borders daily. Apart from easier trade between the countries, NAFTA also makes it simpler for companies to move their operations from one country to another.

What is North American Free Trade Agreement (NAFTA)?

North American Free Trade Agreement or the NAFTA was a trade deal signed between three countries, the US, Canada, and Mexico back in 1994. The deal was signed by President Bill Clinton and was aimed at simplifying the trade between the three countries. The deal framework eliminates the various tariffs among the three countries and allows the unrestricted supply of goods across the borders. The US-Mexico border currently witnesses an annual crossing of over $500 billion worth of goods.

The deal mainly aims at liberalization of trade in agriculture, automobile manufacturing, textiles, etc. It also sought to protect intellectual property, set up dispute resolution mechanisms, and also implements environmental and labor safeguards. It was also known to have deprived the United States of many jobs. Eliminating the NAFTA was a frequent promise made by President Trump during his presidential campaign.

What is the Economic Impact of North American Free Trade Agreement?

Since the inception of the North American Free Trade Agreement in the year 1994, the trade between the U.S. and its North American neighbors has tripled. Mexico and Canada have been the largest destinations for U.S. exports and accounts for more than one-third of the worldwide exports. It is known that the deal has impacted the nation's GDP positively.

Supporters of North American trade agreement argue that the benefits of the deal are widely distributed across the society. They estimate that around 14 million jobs are dependent on the trade with Mexico and Canada and nearly two hundred thousand jobs created annually by the pact pay almost 20% more than average jobs that were lost.

The critics of this deal, on the other hand, argue that the deal has led to stagnation of wages in the U.S. and massive job losses. Many companies moved production to Mexico owing to the low-wage competition and thus resulting in the widening of trade deficit.

How Will Trump's NAFTA Renegotiation Affect Trade?

For President Trump, NAFTA has been one of the key reasons to destroy jobs in the United States. He has made it clear from a long time that he intends to kill or tweak this two-decade long pact with the North American neighbors and replace the pact with something else. Canada has agreed to work on the renegotiation of the NAFTA but Mexico has clearly expressed displeasure and said that they are not open to this proposal.

Some of the key effects of NAFTA renegotiation and NAFTAs economic impact are listed here -

  • Increased Pressure on American Companies

    If ever the deal is withdrawn or tweaked, there will be a lot of pressure on American businesses. Trump has always criticized the Ford Motor Company for setting up a manufacturing plant in Mexico and depriving the Americans of good job opportunities. The government will definitely look into ways to curb such moves by American companies.

  • Increase in Import Tariffs from Mexico

    There might be a serious threat to the tariffs related to imports from Mexico, though it will be difficult to convince Mexico to agree to this decision. Withdrawing the entire deal will also be a tricky decision for Trump, considering the facts that how deeply the two economies are dependent on each other.

  • Difficult to Convince Congress

    If there will be talks to tweak the NAFTA, which will mean getting Canada and Mexico to the table and involving the Congress to get any new agreement in place. This can create a whole lot of complications. Convincing the Congress to sign a new deal can get difficult.

  • Affect American Company Dependence on Neighbors

    Loads of American businesses depend on these countries for bringing existing components of their supply chains and outsourced services. This process will require a lot of time and money. It will definitely increase the costs of these businesses in the future.

  • Hit US Employment and Economy

    This could spark off a trade war with Mexico, who in turn may look to increase tariffs on American goods. This will hit the US economy in return and may result in loss of jobs, which is the whole point behind Trump's decision of withdrawing NAFTA. While some jobs may be created, more jobs may be lost in the bargain.

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