US-Mexico supply chains and the end of NAFTA 11/23/2018

Background Bilateral trade total: $583.6bn Mexico’s conversion to free trade champion Deep dependence on NAFTA/US Trade is but one part of this – integrated supply chains and integrated production platform Companies invest in Mexico and the US as an integrated strategy Bilateral trade total: $583.6bn US exports to Mexico $267.2bn (China $116bn) 2nd largest goods export market in the world up 97% since 2005; up 468% since 1993 15.7% of all US exports Machinery $42bn, electrical machinery $41bn, vehicles $22bn, Services up 196% since 1993 Agriculture $18bn (3rd largest agri export market): corn, soy beans, dairy, pork, beef Us exports 400,000 tons of poultry to Mexico US Imports from Mexico $316.4bn 11/23/2018

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NAFTA realities 14 million American jobs rely on North American daily trade of more than $3.3 billion. In 2016 the U.S. last year recorded a trade surplus of $11.9 billion with its NAFTA partners when manufactured goods and services are combined. Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada Under NAFTA, companies tap the comparative advantages of all three markets and have created an intricate web of supply chains to maximize returns. Nafta brings scale, it brings competitiveness, it brings efficiencies and synergies between all three countries, and it brings duty-free trade. Its demise would be “basically a $10 billion tax on the auto industry in America.” 11/23/2018

After NAFTA Average WTO tariffs: Mexico 7.1%, USA 3.5%, Canada 4.2% Autos: 2.5% Mexico: Tariffs on agricultural exports to Mexico are particularly costly, including a 15 percent tariff on wheat, a 25 percent on beef and a 75 percent tariff on chicken and potatoes. But goods like soap, fireworks, handbags and many articles of clothing face tariffs of 15 to 20 percent. Mexican goods would, in turn, face an average United States tariff of 3.5 percent. Canada: Trade experts are debating whether Canada and the United States would revert to a pre-existing free-trade agreement between the two countries that was superseded by Nafta. If not, United States exporters would face an average W.T.O. tariff in Canada of 4.2 percent, again with much higher rates on some goods, including 27 percent for beef and 18 percent for most apparel. 11/23/2018

Reversing NAFTA Reversing NAFTA: A supply chain perspective by Terrie L. Walmsley & Peter J. Minor “Overall, the results show that the US’s reversal of NAFTA leads to a decline in real GDP, trade and investment in the US, Canada and Mexico, with most of the losses resulting from Canada and Mexico’s reciprocation. The losses in low skilled employment are most significant, with employment declining by 256,000, 125,000, and 951,000 in the US, Canada and Mexico respectively. Production and specialization of production across the NAFTA region declines, particularly in those sectors with the highest levels of vertical specialization across NAFTA. The motor vehicles and services sectors in all three NAFTA countries decline, along with production of US meat, food, and textiles; Canadian chemicals and metals; and Mexican textiles, wearing apparel, electronics and machinery.” 11/23/2018

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The importance of NAFTA trade (total and in intermediate goods) 11/23/2018

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The energy trade 11/23/2018

How does this make you feel? While a withdrawal from the North American Free Trade Agreement is something U.S. Trade Representative Robert Lighthizer -- and President Trump -- “think about all the time” as an alternative to reaching a new deal with Mexico and Canada, USTR has not done “any analysis” on what the end of NAFTA would mean for the U.S., he said Tuesday. “You always think about what might happen, but we haven't done any analysis of that at this point,” Lighthizer told reporters on Oct. 17 when asked whether he had examined how an unsuccessful NAFTA renegotiation would impact the United States economy, and whether there was a “backup plan.” “No, we don't really have a plan beyond trying to get a good agreement,” Lighthizer said. “If we end up not having an agreement, my guess is all three countries will do just fine. There's a lot of trade, there's a lot of reasons to trade, but clearly our objective here is to get a good agreement.” 11/23/2018

Thank you Duncan.wood@wilsoncenter.org 11/23/2018