The sprint to revise NAFTA has millions of jobs on the line

Modernizing the North American Free Trade Agreement (NAFTA) is beginning with a “sprint.” The three governments have agreed to an accelerated set of negotiating rounds to see if they can forge an updated arrangement for trade between Mexico, Canada and the United States by early 2018. It will be a tough dash, with immensely important stakes.

The early “sprint” is because Mexico’s July 2018 presidential and congressional elections close the political window for approval of an agreement in Mexico by early 2018. Delay will prolong the uncertainty, including on what positions a new Mexican team might take. If the “sprint” does not work, the negotiations will shift to a jog, until after a new Mexican president enters office in December 2018.  

{mosads}The opening statements by the lead negotiators, especially by the U.S., and the flurry of news reporting on the first round negotiations, however, remind us that the “sprint” faces serious challenges rooted in conflicting objectives and complex issues.

The primary objective, however, should be that the negotiations not fail in a way that would endanger the estimated 14 million U.S. jobs supported by $1.2 trillion in trade between Mexico, Canada and United States. Unlike negotiating a free trade agreement with a first-time partner, U.S. businesses and farmers have built massive networks of commercial and investment relationships across North America under NAFTA, by which companies are producing and selling things together across the borders of the continent to great mutual benefit.

If you disrupt those networks significantly by pulling out, as President Trump publically threatened, or by demanding too much from the other partners — for example trying to eliminate U.S. trade deficits with managed trade — the costs in all three economies would be significant.

The millions of stakeholders across the U.S. who are linked into NAFTA would suffer, with particularly hard blows to all of the U.S. border states, including Texas, Michigan and California, that participate directly and indirectly in most of the trade between the three countries. Other big losers would be U.S. agricultural states, which sold some $40 billion in farm products to America’s two neighbors in 2016.

Given President Trump’s threats and the direction of some U.S. objectives, the stakeholders who have the most to lose, and their elected representatives in Congress and state houses, need to stay active and persistently insistent in the months ahead to remind the Trump administration that failure cannot be an option.

Second, these stakeholders need to keep working to correct the distorted picture of NAFTA repeated by President Trump and his associates. NAFTA has faults and can be much improved. Some U.S. jobs did move to Mexico, but others were created in the U.S. The jobs created were not mentioned by U.S. Trade Representative (USTR) Robert Lighthizer when he cited the losses as the negotiations opened.

An estimated 700,000 jobs depended on trade with Mexico in 1993, but today an estimated 4.9 million U.S. jobs are supported by U.S.-Mexico commerce, with total bilateral trade six times what it was in 1993. Too many U.S. workers have been left behind in this century, but serious studies found most manufacturing job losses were attributable to companies improving their productivity and to trade with China, not to trade in North America. As there were not sufficient public programs at the federal or state levels to help workers adjust, much of the blame should go to poor U.S. public policies.

Correcting public perceptions must be a priority. A recent poll from the Chicago Council on Global Affairs found more positive views on trade among the American public since the last survey in 2016, with 78 percent of the public saying international trade is good for consumers, 72 percent saying it is good for the U.S. economy and 57 percent saying it is good for creating US jobs.

But the poll also revealed a wide partisan divide on NAFTA opening since 2013, with 71 percent of Democrats and 53 percent of Americans overall saying that NAFTA has been good for the U.S. economy, but only 34 percent of Republicans characterizing NAFTA’s effects as good. The sharp and misleading criticisms from President Trump and his allies fueled this partisan divide. Those who understand NAFTA need to keep spreading the facts about what is really at stake.

Third, there is much good that can be done by modernizing NAFTA. This is not just tweaking the agreement as USTR Lighthizer noted. The talks are about making it into a cutting edge, state-of-the-art arrangement. Getting agreement on the wide range of topics from digital trade and treatment of data flows, to intellectual property protection, to border trade facilitation will be complex.

Building environmental and labor issues into the agreement will also be complicated. Identifying, reducing and eliminating non-tariff barriers at the borders and in regulations can save billions of dollars yearly and open up big market opportunities for small and medium enterprises, as well as the bigger companies.

Including energy firmly in the treaty can solidify expanding markets for the U.S. and help guarantee the long-term energy security of North America. Already, U.S. energy sales to Mexico have jumped with a $10-billion surplus in 2016, and U.S. sales to Mexico are expected to grow. The agreement can also help set new standards for others in the world, for example, with a strong section regarding unfair manipulation of currency.

In this process, all must seek to expand opportunities for trade. The outcome from modernizing the agreement should be that U.S. companies can sell more goods and services with fewer barriers. But, Canada and Mexico have understandably signaled that they will not agree to steps that will manipulate or manage trade unfairly to reduce the U.S. trade deficit.

Many economists point out that seeking to adjust the U.S. trade deficit in a trade agreement doesn’t make sense because the reason for the U.S. overall trade deficit is based in how much the country consumes and saves as a whole and that will not shift with a trade agreement. At present, Mexico and Canada also run global trade deficits that are larger than the U.S.’ deficit as a percent of GDP.

They are not surplus countries like China or Germany who sell more to the world than they buy. It is not yet clear how the U.S. will seek to reduce the trade deficit in the specifics of the negotiation.

There are other difficult issues to sort through, such as the U.S. objective to strengthen its freedom to impose trade actions against what it views as unfair Canadian or Mexican actions or to protect U.S. “Buy America” provisions for government procurement. Both neighbors have signaled deep concerns about this. Lighthizer’s desire to revisit “rules of origin” in the auto sector to assure more U.S. content has also raised concerns with automakers as well as Mexico and Canada.

These factors underscore the challenges of completing the negotiations during the initial six-month sprint and the importance of doing no harm to the massive economic relationships across North America. The stakeholders in these relationships also need to contribute creative thinking about how to generate new jobs at home and better workforce development programs to prepare our workers for the waves of change ahead. Success demands hard work by all.

Earl Anthony Wayne is a public policy fellow at the Woodrow Wilson Center, among other positions. Wayne served as U.S. ambassador to Mexico and assistant secretary of state for economic and business affairs during his 40-year career in public service.

The views expressed by contributors are their own and not the views of The Hill.