Bill Owens: NAFTA - What Happens Now?

Much has been written in the Canadian press about the US/Canada relationship, particularly since the recent US presidential election, while the US press has largely ignored this relationship and instead has focused on the US/Mexico relationship.

Those of us who have supported NAFTA over the years understand that the movement of jobs out of the United States is a complicated issue and cannot be blamed simply on NAFTA or Mexico. I know of no economist or trade expert with legitimate credentials who believes that tearing up NAFTA (which effectively means imposing tariffs on goods coming from the NAFTA countries) will result in the return of any jobs to the United States or Canada. In large measure, the jobs that we collectively lost went to jurisdictions that have lower labor costs, occupancy and raw material costs. Also, we must not forget the impact of technology and other efficiency gains in the US.

It is instructive to look at labor costs in the United States, Canada, Mexico and China, and the impact of those costs on job loss in the US. In 2012, the hourly cost of labor in Mexico was $6.48 (all of these are expressed in US dollars), Canada $36.56, China approximately $2.46 and the United States $35.53. Here is the first question I would pose to Mr. Trump and whoever is in charge of his trade policies: How much would you have to raise tariffs in order to ensure that goods could be more profitably made in the United States? The second question is: Will the American consumer be willing to pay the price increase? If not, that could have an enormous impact on the American economy, including businesses like Wal-Mart, Target and many, many small businesses.

The third and maybe the most important question is: How long will it take for those manufacturing jobs to return to the United States, if they do? Clearly, factories would have to be built, which will likely take years. These new factories would likely include much more efficient technology, thus decreasing the number of American workers employed, and allowing those businesses to charge, in effect, the same prices as the Mexican, Chinese or Canadian goods would cost after the imposition of the tariff. Still no break for the American consumer.

Carrier Corporation is currently negotiating for concessions from President-elect Trump. Will we find out what concessions he has made to keep Carrier in Indiana? If President-elect Trump fails or gives concessions he can’t deliver, such as tariff reductions, then what?

Then, of course, we have to look at what our actual trade relationships are with Canada and Mexico, as they represent 15 percent and 14 percent, respectively, of our international trade, while Britain represents 3 percent, and China about 15 percent. Taking action that decreases international trade will have negative impacts throughout the economy.

One thought-provoking article I read coming out of Great Britain indicated that they felt that the Brexit vote gave them a great opportunity to join in a border trade agreement with the NAFTA countries. Whether it was the British writers or their readers who thought this, they need to understand Mr. Trump wants to do away with trade agreements, not enter into new ones. That might have happened if Hilary Clinton had become president, but there is no way Donald Trump and his cohorts will readily consent to that kind of an agreement in the short term. In a stroke of political and strategic genius, the Prime Minister of Canada, Justin Trudeau, offered to negotiate NAFTA issues, but I’ve not heard much from President-elect Trump in response to that offer.

One remedy that could bring jobs to the US, although not low-skilled ones, would be Buy America provisions. We see such provisions in our highway projects and other municipal funding legislation. This may encourage foreign investors to create “foreign” made-in-America products. Let’s see how creative the Trump administration is in this space.

How do hordes of Republicans who have long supported NAFTA, voted for the Fast Track procedure, and were prepared to vote for TPP, now pivot and say no more trade deals, and on top of that, we want to undo all those that we have in place? Will American businesses stand for that kind of policy, and will the US Chamber of Commerce support it? Trade will be an area where there will be many bumps in the road, and who knows where we will wind up. The one thing I can predict with certainty is that low-skilled workers will not be better off under President-elect Trump.

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