For advocates of liberalizing trade policy, the State of the Union could have been a lot worse. Fears that Trump would announce American withdrawal from the North American Free Trade Agreement (NAFTA) turned out to be unfounded, as the president did not even mention NAFTA during his speech. Yet while trade observers have mostly viewed recent events as diminishing the chances that the United States does eventually withdraw from NAFTA, significant sticking points still remain, largely due to American recalcitrance. Rather than holding up the negotiation process to score political points, U.S. representatives should look to other major trade deal negotiations, which have been largely successful, as a model.
Concerns over the fate of NAFTA are hardly occurring in a vacuum. Trump’s recent actions have not exactly inspired confidence in his commitment to an open trade policy. In the middle of January, the president decided to impose strict tariffs on imported washing machines and solar panels, favoring anti-competitive industries over American consumers and workers.
And while Trump did not directly mention NAFTA, he did promise that the country would “[turn] the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our Nation's wealth,” language which suggests a more adversarial approach to trade negotiations in the future. Sen. Joni Ernst (R-IA) has even suggested that Robert Lighthizer, trade representative in charge of NAFTA negotiations, is in favor of a U.S. withdrawal from the trade agreement.
While North America remains engaged in petty squabbles over which industries to protect, other regions around the world are hard at work lowering their trade barriers. One of the most significant developments in global trade of late has been the effort to liberalize trade policy within the African continent. African nations have historically been drawn towards protectionism, an impulse which has harmed their ability to grow their economies. Because of their unusually high trade barriers—even by the standards of developing economies—African nations generally have not been successful in developing significant export economies, making it difficult to transition from subsistence to specialization.
The Continental Free Trade Area (CFTA) should change that. Expected to be signed sometime in early 2018, the CFTA creates a common market between all 54 members of the African Union. Due to this arrangement, the United Nations Economic Commission for Africa estimates that trade on the continent will increase by 50 percent, resulting in $35 billion in benefits. The CFTA will also create the world’s largest common market. By expanding trade within the continent so significantly, African nations set themselves up to create industrialized economies that can export to Europe, Asia and the Americas.
Yet the CFTA is not the only major global trade deal expected to be finalized in early 2018. A reanimated version of the Trans-Pacific Partnership (TPP), known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), is also nearing completion. As the CPTPP includes all of the signatories of the TPP with the exception of the United States, including major global players such as Japan, Canada, and Australia, the combined GDP of the countries involved constitute 13.5 percent of the global economy.
The CPTPP itself represents a missed opportunity for the United States—one analysis suggests that the 11 signatories could realize income gains of $147 billion by 2030 under the CPTPP, compared to $492 billion under the TPP—but the cost of failing to renew NAFTA would be far greater. A study by the Business Roundtable found that 1.8 million American workers could lose their jobs in the year after termination of the agreement alone. Worse, the study suggests that this is the conservative estimate, as the number of Americans needlessly forced into unemployment could be double that.
Such wide-scale economic disruption alone, and the hardship the millions of Americans who lose their jobs would undergo, should be enough for the administration to recognize the need to keep NAFTA from falling apart. Yet costs to the economy would exist long-term as well. Even beyond the next decade, the same study finds that the cost of terminating NAFTA would average $50 billion annually.
At a time where the rest of the world is shoring up regional trade relationships, the United States should learn from their example. The United States cannot afford to withdraw from NAFTA—the cost would simply be too high.
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