President Donald Trump has called the North American Free Trade Agreement “a defective agreement” and “the worst trade deal maybe ever.”
He is pessimistic about recent talks to revise it, saying, “I don’t think we can make a deal because we have been so badly taken advantage of … so I think we’ll end up probably terminating NAFTA at some point.”
If he does so, struggling Iowa farmers will feel the impact. Trump nearly opted out of the agreement in April, but was dissuaded from doing so because of its impact on farm states. Agricultural exports to Mexico and Canada, which were $8.9 billion in 1993, now surpass $38 billion.
It has been a boon to Iowa corn, soybean, pork and poultry producers, but a mixed bag for others. Fruit and vegetable producers have complained about competing against Mexican subsidies. Cattle ranchers, wheat farmers and dairy producers have accused Canada of blocking imports.
NAFTA — the free trade pact involving the U.S., Mexico and Canada — was negotiated by President George H.W. Bush and signed by President Bill Clinton, taking effect in January 1994. Tariffs were eliminated on most products, notably involving agriculture, vehicles and textiles.
NAFTA does need to be fixed, leveling unfair playing fields and adding provisions for telecommunications, finance and digital and intellectual property.
Trump has strange bedfellows in opposing NAFTA, including Sen. Bernie Sanders I-Vt., and organized labor. It is blamed for the loss of U.S. manufacturing jobs and trade deficits — Mexico, $63 billion in goods, and Canada, $11 billion.
But a 2012 University of Chicago survey of 41 prominent economists found 85 percent agreed Americans were better off under NAFTA, 5 percent were uncertain and none disagreed.
“There is almost no evidence that NAFTA was substantially harmful for U.S. workers. That myth has been promulgated by people from Ross Perot to Pat Buchanan to Donald Trump, but there is not any academic support for it,” said Massachusetts Institute of Technology economist David Autor, who co-authored a NAFTA study.
Instead, economists blame China, which entered the World Trade Organization in 2001. China exports $347 billion more in goods to the U.S. than it imports (40 percent of the $750 billion trade deficit). Japan is at $69 billion and Germany, $67 billion.
According to the U.S. Bureau of Labor Statistics, U.S. manufacturing jobs declined long before NAFTA — from a high of 19.4 million in 1979 to 17.6 million in 1987. They plunged to 11.5 million in 2010 in the aftermath of the recession, but were up to 12.4 million in July.
The exodus of textile jobs predated NAFTA, but the U.S. trade deficit in auto and parts manufacturing has tripled since 1993 to $130 billion in 2013. Nearly 350,000 workers — a third of the industry — lost jobs, although 800,000 are employed today.
University of California at San Diego economist Gordon Hanson said it could be worse without NAFTA.
“There was a concern 20 years ago that an auto industry production chain would develop across Asia, including China and Taiwan and Southeast Asia,” he said. “Maybe NAFTA saved us from that.”
Agricultural interests are concerned about NAFTA’s possible demise.
“We have a vital interest in helping our negotiators make improvements, but also to do no harm to the gains that we have gained in NAFTA,” said Zippy Duvall, the American Farm Bureau Federation president, who called it “a success story for North America farmers and ranchers.”
According to the National Corn Growers Association, 30 percent of farmers’ income is derived from corn and its byproducts. Mexico is their top export market. Canada leads in ethanol.
“NAFTA has been incredibly successful for our industry,” said Jennifer Myers, an NCGA spokesperson.
About 45 percent of U.S. soybeans are exported to Mexico. Canada is another major market.
“If everybody decided to close their borders to U.S. products and protect their own farmers with high subsidies, we’d have no place to get rid of our soybeans,” said Rick Ostlie, former American Soybean Association president.
Trump already may have cost the cattle industry by pulling out of the Trans-Pacific Partnership, which would have lowered Japan’s tariffs on beef from 38.5 percent to 9 percent over 16 years, “the greatest market access ever negotiated — so far,” said Kent Bacus of the National Cattlemen’s Beef Association.
The other 11 nations involved in the TPP — including Canada and Mexico — are seeking to revive it rather than join a Chinese-backed regional trade group, which would leave the U.S. outside looking in.
Ironically, the Washington Post reported Trump’s proposed NAFTA revisions are largely lifted from the TPP, including rules on treatment of workers, the environment and state-owned enterprises.
Revising NAFTA would be good for the economy. Rescinding it while imposing protectionist tariffs would substantially boost prices of imported goods and cost jobs.