The North American Free Trade Agreement has been good for North Carolina. Mexico and Canada are today North Carolina’s largest foreign trade partners. As many as 400,000 jobs in North Carolina depend directly or indirectly on trade with Canada and Mexico.
That is why it is so important that North Carolina’s congressional delegation look closely at the implications of changes to the agreement.
Whether we like it or not, the United States’ relations with its NAFTA partners are symbiotic. We benefit mutually, albeit not equally, and we are also mutually dependent. If the effort to forge a new agreement collapses, all sides will suffer.
Over the last 25 years, since NAFTA was ratified, policy advocates and U.S. trade negotiators from both parties defended virtually every subsequent free trade agreement by insisting that “this new agreement meets a higher standard than previous agreements.” Translation: this is the best agreement yet.
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One could also expect to hear from these same spokespersons an acknowledgment that, though the benefits of free trade are not equally distributed, the cumulative impact is positive. Translation: the United States as a whole benefits from free trade but not necessarily all Americans.
Both of these points are relevant now for North Carolina as President Trump and his team pursue a renegotiation of NAFTA in an atmosphere made worse by the unprecedentedly nasty exchanges that followed this weekend’s G-7 summit in Canada.
In 2017, North Carolina exported more than $6.5 billion in goods to Canada and around $3.5 billion in goods to Mexico. We imported around $3.5 billion in goods from Canada and $4.7 billion from Mexico. By comparison, North Carolina imported more than $10 billion from China in 2017 while exporting less than $2.5 billion. Bottom line: aggregate trade between North Carolina and our NAFTA partners resulted in a substantial net surplus for the state.
This does not necessarily mean that NAFTA is just right as is for North Carolina or that the advent of free trade generally has been an unqualified positive development for the state. One only has to visit some of the small towns outside the booming Triangle and Triad regions to see that important areas of the Old North State have been left behind. The nearly deserted downtowns, the empty store fronts, the shuttered and deteriorating old factories do much to explain the anti-globalization sentiment so palpably evident in some parts of our state — as well as in vast regions of the nation.
The blame does not all rest with NAFTA, of course, but NAFTA was the first regional free trade agreement for the U.S. and is still the biggest to which the U.S. is a signatory. And while NAFTA is our most economically significant free trade agreement, it is not now the best. In the last quarter century all three economies have evolved in important ways. Hence, the Trump administration’s determination to force improvements on our partners is not unreasonable. The Trump administration’s goal is a better deal for U.S. workers and industry.
But achieving this will not be easy or cost-free. Mexico has already announced it will be imposing tariffs on a range of U.S. goods in response to the Trump administration’s decision to impose steel and aluminum tariffs on Mexico, Canada and the European Union. Among the products subject to tariffs is pork, North Carolina’s largest agricultural export to Mexico.
This is what the opening salvo in a trade war looks like and it is not something we should welcome. Trump is not necessarily wrong when he asserts that much of the world has ridden our coattails to an era of greater prosperity. We would be wrong, however, to ignore the corollary to that assertion: the U.S. has – in the aggregate – become more prosperous as well. The aim of the current negotiations should be to create a better trading regime, one that eliminates distortions without sacrificing benefits.