NAFTA, the U.S. trade success story

By Staff, with files from The Canadian Press | February 13, 2017 | Last updated on February 13, 2017
3 min read

Technology, not NAFTA, has cut manufacturing jobs.

Read: Is Canadian business confidence on shaky ground?

In fact, manufacturing’s share of U.S. GDP has been stable for decades, reveals a Scotiabank economics report. Despite President Trump’s talk of trade imbalances and job losses, NAFTA is a trade success story, having tripled the continent’s trade and ensured its competitiveness since the agreement’s 1994 inception.

For instance, NAFTA’s non-discriminatory provisions between member countries level the playing field for merchandise and services trade. And, beyond eliminating tariffs, the agreement protects intellectual property rights on traded products and strengthens protective rules and procedures for cross-border investors.

Further, far from being static, the agreement has been modified and amended several times to adapt to new developments. There’s also a structured dispute-settlement mechanism for trade disagreements and investing issues covered by the agreement.

So what’s not to like, Mr. President? At Trump and Prime Minister Trudeau’s joint conference on February 13, the president was more positive on NAFTA and trade with Canada, but he still mentioned plans to “tweak” the agreement.

NAFTA trade details

In 2015, the U.S. trade deficit with both Canada and Mexico was only about 10% of the total annual U.S. trade deficit.

Overall, U.S. energy and resource imports — not manufacturing or services — drive any trade deficits that the U.S. has with Canada and Mexico. That means U.S. business and consumers win by tapping relatively cheap sources of North American energy. And NAFTA accounts for about 40% of U.S. export growth.

In fact, the Canadian government says nine million U.S. jobs are tied to trade with Canada, and Canada buys more from the U.S. than all members of the European Union combined.

The table below shows the growth in trade flows in goods and services among the NAFTA partners between 1993 and 2016 — a growth that’s largely similar between countries.

NAFTA member country Average growth of member country’s exports to the U.S. Average growth of member country’s exports to Canada Average growth of member country’s exports to Mexico
U.S. N/A 4.5% 7.3%
Canada 4.5% N/A 9.9%
Mexico 8.6% 9.9% N/A

Source: The Canadian Press

The decline in manufacturing began in the 1950s and hasn’t accelerated since more open international trade began. The report cites research that shows nine out of 10 manufacturing jobs lost in the U.S. have been eliminated by mechanization, not trade. It’s a global trend affecting many countries.

Read: The link between GM’s recent layoffs and NAFTA

Likewise, technological innovation and adoption will likely help make up for any lost production.

Stay defensive with S&P portfolios

The anxieties created by Trump’s global trade talk could disadvantage American businesses.

American firms with global operations are in the crosshairs with Trump’s “Buy America” platform, says Nick Exarhos, director at CIBC World Markets, in an economic update. Such firms may be indirectly affected by slowed investment and growth, and, potentially, duties on American-made goods in retaliation to potential U.S. import tariffs. In particular, tech companies, keen to sell to ever-rich emerging market consumers, would lose.

Combine that with interest rates creeping higher, and “a more defensive U.S. focus to S&P portfolios should gain favour,” says Exarhos.

Read the full Scotiabank report on NAFTA here.

Also read: Will Trump’s deregulation really matter?

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Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.