“The worst trade deal in the history of the world.”
Since the start of his campaign for office, President Trump has shared his harsh opinion against the North American Free Trade Agreement (NAFTA), which has sparked heated debates. Recently, NAFTA has been the focus of discussions everywhere, fitting directly into the broader debate over global trade policy. This constantly begs the question of protectionism versus open markets. Free trade eliminating discrimination against imports and exports among nations comes with both benefits and drawbacks. Often times, we will see increased economic growth and global competition, lower government spending, and the transfer of new technologies that allows all parties involved to prosper. Unfortunately, however, we have also seen the depletion of natural resources and cultures, increased job outsourcing, and even poor working conditions in particularly involved industries. NAFTA, involving the United States, Mexico, and Canada, has greatly affected the textile, agricultural, and automobile industries, raising specific areas of concern. Now, we are left with the overarching question: Exactly how “free” is NAFTA?
After decades of controversy, the time to renegotiate NAFTA has finally come. As promised in his campaign, President Trump has been formally negotiating with Mexico and Canada in attempt to create a more beneficial agreement for all countries involved. The “new” NAFTA, now being called the U.S.-Mexico-Canada Agreement (USMCA), has several severe changes that will hopefully facilitate trade and create a level playing field for all parties involved. Among President Trump’s promises is the implementation of the rule of origin, which places higher standards on the auto industry. This rule states that 75% of a vehicle must be manufactured in the U.S., Mexico, or Canada. Changes are also being made to improve labor protections. For instance, auto factory workers must make at least $16 per hour and safety standards are being improved. This means that Mexican trucks must now meet U.S. truck standards before their trucks are allowed in the United States. In addition, Canada has agreed to allow more access to its dairy market to the U.S. Finally, there is now more protection for patents and trademarks to ensure intellectual property rights. While these revisions alone will not be enough to establish a sustainable trade relationship, there needs to be significant change.
We believe there should be an equal playing field for everyone to prosper under NAFTA and the new deal is only initiating this notion. The soon-to-be-old NAFTA enabled Mexico to capitalize on its trading partners, Canada and the U.S. In 2017, Mexico was the largest two-way goods trader in the world, almost solely due to NAFTA’s provisions. Not to mention the U.S. had a $1.7 billion surplus in 1993 with Mexico. After NAFTA was signed in 1994, however, the U.S. maintained a trade deficit of $54 billion. In addition, Canada also had a negative trade balance with Mexico of $11.9 billion. The U.S. and Canada have lost over 638,000 jobs likely due to the implementation of NAFTA, while the Mexican economy has tripled since the document was signed. It is important for the U.S. and Canada to show Mexico the value that it provides. This can be done through restructuring and working on trade deficits. Eventually, we can create a cross-border powerhouse for the next generation. On a smaller scale, this new deal will have a crucial impact on how we as consumers are going to purchase products and services.
As the new NAFTA is being discussed at the moment, we as consumers need to understand the new developments being proposed and stand up for revisions that will benefit us as individuals and as a nation. As President Trump attempts to renegotiate the NAFTA agreement with Canada and Mexico, we must consider several important recommendations. First, as previously discussed, we must modernize the new free trade agreement to take advantage of recent technological advancements. Next, we must expand the agreement to include updated provisions that were not previously addressed. Finally, we must remove areas that do not serve our best interest. If the government reforms the original NAFTA in the aforementioned areas, it is certain that all three countries will prevail equally and the relationship will be sustainable for the years to come.
The writers are students enrolled in the College of Business at the University of Rhode Island.