The End of NAFTA?

― Esther Chung, Editor-in-Chief ―

trump
Photo Courtesy of Gage Skidmore

Post-election, many people have been wondering what exactly to expect from the upcoming and widely controversial Trump presidency. President-elect Donald Trump, who spoke extensively about reshaping America throughout his campaign, has recently released a memo that outlines his first 200 days in office. Drafted by his transition team and obtained by CNN, the memo is mostly about trade policies and prioritizing American workers. The plan is built around 5 main principles with an extra emphasis on manufacturing jobs. All the principles set by Trump are about trade reform, like putting a 35% tax on goods made in Mexico and sold in the US, like Ford cars, but one stands out significantly: renegotiation or withdrawal from NAFTA (North American Free Trade Agreement), something Trump has repeatedly promised during his campaigns. So, why does Trump want so badly to leave NAFTA, and what does that mean for the US? Here are the answers.

Why does Trump hate NAFTA?

Trump has publicly declared his hate for NAFTA many times throughout his presidential campaign, calling it the “worst trade deal in history.” This agreement between Canada, Mexico, and the United States was signed into law under President Bill Clinton in 1994. Essentially, this agreement eliminated nearly all tariffs among the three North American nations to help goods and supplies pass easily across borders. Specifically, it made it easier for U.S. firms to invest in Mexico. Billions of dollars in goods cross borders, specifically U.S.-Mexico borders, daily. However, Trump’s biggest beef with NAFTA is that the agreement also makes it extremely easy for companies to move their operations from the U.S. to Mexico, negatively impacting manufacturing jobs in America. In order to improve the American economy, Trump believes that renegotiating the terms with Canada and Mexico is necessary. And if no compromise is reached? Trump says America will withdraw immediately.

What does this mean for America?

According to NAFTA’s Article 2205, any party may withdraw from the agreement in six months after it provides written notice. Therefore, Trump’s ability to withdraw from NAFTA without Congressional approval means that if he really wants to, NAFTA can be scrapped in a heartbeat. What would happen in this case is unclear because the U.S. has not withdrawn from a trade agreement since 1866. However, a few possibilities are that tariffs could revert to pre-NAFTA levels, or that investments made by the U.S. may be blocked entirely. Regardless of what happens, court cases would pop up immediately. “U.S. importers would take the U.S. to court the next day,” says Gary Horlick, a trade lawyer. Withdrawal from NAFTA would also have detrimental effects on the majority of businesses, and American consumers would see a steep rise in prices, as acknowledged by Trump during one of his speeches in New Hampshire.

All in all, withdrawing from NAFTA is not likely to do much to help U.S. workers. The negatives of higher tariffs would outweigh the advantages of American companies manufacturing in Mexico. Ultimately, the most likely outcome of withdrawal would be American companies moving production. However, unlike Trump hopes, most companies will probably seek lower wage countries to continue business in, rather than bringing jobs back to America.

Header Photo Courtesy of Esther Chung