Op-Ed: Why Trump's plan to kill NAFTA will have dangerous consequences

Op-Ed: Why Trump's plan to kill NAFTA will have dangerous consequences
Op-Ed: Why Trump's plan to kill NAFTA will have dangerous consequences

President Donald Trump's promise to renegotiate NAFTA and have Mexico pay for a wall along the U.S. southern border have become central issues in the agenda of the new administration. They rest on two main assumptions: that NAFTA has disproportionately benefited Mexico at the expense of the US, and that unauthorized Mexicans cross the border in alarming numbers to carry out criminal acts. As President Trump has tweeted, "Mexico is killing us at the border and killing us on jobs and trade."

Based on this view, one would assume that Mexico has done demonstrably better than the U.S. since NAFTA and that unauthorized migration from that country is at an all-time high. Instead, Mexico's performance during NAFTA has been lackluster. After NAFTA came into effect in 1994, entire Mexican industries—such as furniture, toys, and corn, the source of the ubiquitous tortilla—disappeared almost overnight because local companies could not compete with foreign multinationals.

Foreign companies producing in that country did not have to buy Mexican inputs, so many businesses—like the maquiladoras in the textile and electronics industries—imported raw materials duty free and exported them again, generating few linkages with Mexican supply chains. Without the subsidies that American farmers are used to—$20 billion dollars per year—Mexican agriculture took a beating as well. Although exports of Mexican avocados and tomatoes have increased as result of NAFTA, 2 million agricultural jobs have disappeared.

Although Mexico's foreign trade increased dramatically since 1994, it averaged a fairly mediocre per capita growth rate of 1 percent, compared to 1.5 percent in the US and Canada. Not surprisingly, 8 years after 1994, only 30 percent of Mexicans thought their country had been a winner of NAFTA, compared to 38 percent in Canada, and 48 percent in the United States. A 2013 poll suggests 50 percent of Mexican respondents believe NAFTA has benefited the U.S. most, and 47 percent believe that Mexico fared the worst.

Rather than igniting a trade war that would hurt both countries, the Trump administration should realize what a world without NAFTA would look like. In particular, there are four direct consequences it would have to expect:

CNBC

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