If the U.S. withdraws from the North American Free Trade Agreement, North Carolina’s economy would see some losses, according to two studies released late last month.
A report from the U.S. Chamber of Commerce ranks North Carolina as the 12th most vulnerable state if NAFTA is repealed. Meanwhile a report from Michael L. Walden, an economist at North Carolina State University, says North Carolina could gain in some industries if NAFTA is repealed but would lose in other areas. The tens of thousands of jobs that have already left are unlikely to come back.
The North American Free Trade Agreement (NAFTA) is a trade deal between the United States, Mexico and Canada that went into effect in 1994.
By eliminating tariffs, duties and restrictions on the amount of imports and exports, goods and materials were able to flow freely between the countries. It brought U.S. shoppers cheaper goods, but also led U.S. companies to set up shop in Mexico where labor was cheaper.
“In 1994, when the NAFTA treaty took effect, there were around 80,000 individuals in North Carolina employed in the apparel industry, and right out of the shoot that started a long-term decline,” Walden says.
Another trade agreement, the General Agreement on Tariffs and Trade, or GATT, also caused job losses.
When GATT was signed in 2000, North Carolina had about 80,000 people working in the furniture industry,Walden says. Now he puts the number around 35,000.
In total, North Carolina has gone from 350,000 people working in apparel, textile and furniture when NAFTA was signed, to less than 90,000 today, Walden says.
During his campaign, President Donald Trump repeatedly criticized NAFTA and said that by re-negotiating or repealing the agreement, he could bring jobs back to America.
However, the immediate effects of a NAFTA repeal do not appear to benefit North Carolina, and it is not clear that there would be long-term job benefits either, Walden says.
The U.S. Chamber report painted a grimmer picture, stating: “The Tar Heel State would suffer if the United States withdraws from NAFTA, putting at risk nearly 400,000 jobs that depend on trade with Canada and Mexico.”
Export- and import-related jobs are those that are at-risk, said John Murphy, the senior vice president for international policy at the U.S. Chamber. “Stock workers who are moving goods from shipping vessels, people in the transportation outlets,” and folks all along that chain, he said.
According to the chamber’s report, nearly one-third of the state’s exports go to Canada and Mexico, generating over $9 billion in export revenue.
Walden’s report agrees that food processors, farmers (particularly hog farmers) and motor vehicle parts makers will be hurt by a repeal. He points out that NAFTA allows car parts made in North Carolina to be imported into Mexico, where they are assembled and the cars brought to the U.S. for sale. If NAFTA is repealed, the price of cars will likely go up, which could mean fewer parts imported, Walden says. He estimates that North Carolina will lose 0.1 percent of its GDP and permanently lose 5,600 jobs.
The pork industry is particularly worried about the U.S. walking away from NAFTA.
“We support modernizing NAFTA,” said Andy Curliss, CEO of the North Carolina Pork Council, which represents the state’s pork industry. “But we do not support walking away from NAFTA. That would be devastating.”
Overall, pork exports are about 25 percent of the industry, Curliss said. Not every country likes to import the same kinds of meat: Mexico imports a lot of ham, and Japan imports a lot of loins. “Mexico and Canada are two of our top markets for exports,” Curliss said.
“If NAFTA is scrapped that’s probably a 5 percent hit on the industry,” he added. “There’s not very many businesses that can sustain a 5 percent reduction like that.”
But not every industry in the state would be hurt by a repeal.
Walden points out that some sectors, including electronic equipment, chemicals, rubber and plastics may gain from NAFTA’s repeal. These sectors, which have manufacturing in North Carolina, will benefit from the loss of competition from Canada and Mexico. If NAFTA ends, tariffs will likely be imposed upon the import of goods from those countries, making them more expensive than U.S.-made goods.
As for the premise that the jobs that left North Carolina will return, Walden says not to count on it. He points to automation as one reason; manufacturing that was once labor intensive such as the apparel industry have been automated and now require fewer workers.
“I am not one who thinks they will ever come back to the United States,” Walden says.