As strategists from the U.S., Canada and Mexico met last week for the first round of the North American Free Trade Agreement (NAFTA) renegotiations, many in the Northwest wondered what it might mean for our region.
Oregon is a trade-dependent state. Businesses came out in support of the Trans Pacific Partnership under President Obama, even as all three 2016 presidential candidates rejected it.
But NAFTA is different from TPP, because of its huge scale. It is far bigger than trade with select (non-China) Pacific countries could ever be. Canada and Mexico are the U.S.'s biggest trading partners.
As reported in Business Insider, Brittany Baumann, Macro Strategist at TD Securities, said in a note that there was a less than 5 percent risk of one of the countries pulling out completely.
However, as has been said before, "The greatest risk is policy uncertainty, especially given the non-trivial probability for renegotiation talks to last years instead of months, which may weigh on investment decisions."
Bahram Adrangi, professor of economics at the University of Portland, told the Business Tribune, "The renegotiation is more about political economy than economics. The discussions are now probably mostly political, and the President may be addressing for the consumption of a group of constituents."
The rate of loss of American jobs was much steeper when China joined the World Trade Organization in 2001 than when NAFTA began. Even more jobs were lost after the financial recession of 2007-08.
Adrangi said that NAFTA, like all trade deals, always benefits one group and harms another. "We always look at the totality, in economic computation, in our simple, simple models, which are so powerful and have been true since the Second World War. With NAFTA, the benefits outweigh the losses. I think the administration is addressing the wrong side of the equation."
He said they should look at groups who have been the losers and see what can be done for them. "We could look at a modified basic universal income, of the sort being applied in Finland. Finland is only 5 million people so it might be harder."
He said the World Trade Organization, its predecessor, GAT and the smaller TPP are all modeled on the same thing: They come from the ashes of World War II. It might be possible to tweak NAFTA but it's unlikely corporations will stand for whole production lines to be relocated.
"We've created a supply chain which covers all sorts of countries. If we start politicizing this, it's shooting yourself in the foot."
Complex supply chains mean it's hard to track tariffs on a component which may come in and out of the country a few times before it arrives on the shelves in side a product. And it's also hard to just move a factory back to the U.S. from Mexico and stay competitive.
Canada and Mexico are the two largest destinations for U.S. exports, making up over a third of the total. It is estimated that Mexico's exports to the U.S. comprise 40 percent of U.S. value added, the largest fraction among similar economies (China is 4.2 percent, Canada, 25 percent).
The temptation of cheap goods may be too much to overcome low and middle-income people.
"Fifty years ago consumers in the U.S. spent 7 percent of their income after taxes on clothing. Now it's 3 percent."
He added that 30 to 50 percent of manual work has been lost to robots — not to overseas workers.
"Do you want to go back to 1910 when people worked 60 hours a week in backbreaking labor? Now less than 1 percent of the population feeds all of us."
Adrangi he doesn't see anything wrong with a future in which people work a maximum of 20 hours a week.
One key difference he points out: the early 20th century workers had an easier time switching from farm work to factory work because they had transferable skills. They had 12 years of public education. They were used to lifting things, building things, operating and fixing machinery.
"Today you don't know. If you go into a factory now you have to know C++ (a computer coding language). We're also cutting back education. State schools have been raising their tuition by 20 percent a year."
If the U.S. did pull out of NAFTA he thinks there might be a similar reaction as there was to the Paris Climate Accord: cities and mayors said they would stay in.
"I wager the President is trying to fulfill a campaign promise that NAFTA is bad for Americans, but he's not going to change it or walk out."
Manufacturing employment is going down, and has been since the 1980s, but manufacturing output is increasing, because of automation, software and robots.
He concludes, "I don't think dismantling it is going to happen. That's not going to bring back jobs. The jobs are going to robots. Companies are not going to hire a whole host of individuals. Some of these jobs are lost forever. Companies are forced to do that to stay competitive. If they don't their competitors will bury them.'
The city trade group
The Portland Business Alliance encouraged the public to submit public comment to the Trump Administration's Federal Register Notice (FRN), which solicited public comments on the renegotiation of NAFTA."Per the FRN, the Administration seeks comments on general and product-specific negotiating objectives, as well as comments on specific provisions. Following the comment period, a public hearing will be held at the U.S. International Trade Commission. The FRN seeks comments on a total of seventeen topics that will help inform the direction, focus, and content of the NAFTA negotiations." Topics include:
"NAFTA has been an overwhelming positive for Oregon workers and businesses," said Marion Haynes, vice president of external affairs at the Portland Business Alliance.
"The economy has changed significantly in the 20 years since it was adopted. We support efforts to modernize NAFTA as long as it doesn't inhibit the growth of trade or impact investments Oregon companies have made to stay globally competitive."
The US Senator
U.S. Senator for Oregon Jeff Merkley said in May that NAFTA had for two decades failed to provide living wage jobs for Americans.
"Trump's actions to renegotiate NAFTA will only deliver a better result, however, if he operates with a 'workers first' perspective - and so far, he hasn't." Merkley cited "TrumpCare" and Trump's tax proposal as boons for the already-rich.
"If Trump's wealthy and powerful friends dictate the terms of the renegotiation, NAFTA could easily become worse, not better, for working Americans. That's unacceptable. If we don't make things in America, we won't have a middle class in America."
The union leader
After quitting the manufacturers council, AFLCIO boss Richard Trumka wrote in last Wednesday's New York Times, "First, President Trump promised that the United States would withdraw. Then his administration sent a letter to Congress indicating the treaty needed only minor tweaks. Now renegotiation is underway with no clear principles for reform or negotiating goals in sight. Meanwhile, Nafta remains firmly in place."
The regional trade group
Some players want NAFTA strong, but modernized.
The Pacific Northwest Economic Region held a conference on Portland in July bringing together northwestern Americans and Canadians to talk about a variety of issues. Afterwards they worked on action items.
The PNWER's chief executive officer Matt Morrison wrote to Robert Lighthizer, United States Trade Representative, in June, asking for NAFTA to be updated but with a "do no harm" objective.
They asked for "an agreement to modernize NAFTA in a collaborative and transparent process that will strengthen our competitive advantage across the globe."
The emphasis was on keeping trade flowing between Canada and the US.
"This is an opportunity to optimize the largest trading relationship in the world, that between the U.S. and Canada."
The letter continued, "Uncertainty creates an erosion of confidence in markets and investments for the future."
The PNWER letter contained a 10-point list of requests, including such topics as:
PNWER's main hope is for a quick negotiation and "the stability and certainty necessary to increase investment in our globally competitive industries."
The PNWER also conducted a NAFTA Modernization Survey between May 3 and June 7, 2017.
Stakeholders were given specific identified issues and asked how important these are to include in the negotiation of a modernized agreement.
Select stakeholder comments included "Our economy is integrated as the economic watersheds flow north and south. Trade barriers reduce the overall benefit to our region."
On the question of tariffs being detrimental to business and making products more expensive, 84 percent of PNWER member felt that "Tariffs risk turning the market elsewhere."
More than 90 percent of respondents felt cross border banking services would benefit greatly from improved NAFTA regulations pertaining to e-commerce, and standardized financial services regulation.
Reporter, The Business Tribune
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