The damage would be swift. Businesses, farmers and consumers have become so accustomed to NAFTA over the decades that most have forgotten what benefits actually flow from the agreement. But focus on just the problems faced by US agriculture. Right now, nearly all agricultural products go duty free into both Canada and Mexico. Most items flow with limited paperwork and little customs hassle. This will not be the case if NAFTA ends. US exports of corn into Mexico will suddenly face tariffs of 10-15%. Soybeans, grains and flours jump overnight to 10-15% as well. Mexico is one of the best markets for US red meat exports, especially for many cuts that Americans do not favor. Many of these products could face tariffs as high as 234%.
At least some of incoming Trump team—to repeat again—believe the US is already engaged in a trade war. They want manufacturing to take place inside the United States and will do whatever they think it takes to make it so. Many of the key players seem to be stuck in the 1980s and are pulling out the playbook from that era when the United States could dictate terms and insist on mechanisms like voluntary export restraints. The retaliation this time around will be different. The coming year is going to be very challenging for firms. Trump is not going to change his mind on trade. He really means business.
This is a reprint of our September 28, 2016, post outlining Donald Trump's trade policy paper, written by Wilbur Ross and Peter Navarro. Wilbur Ross has just been named by Trump to be Commerce Secretary. Ross has not been backing away from this document. Since his name surfaced, Ross has said the US has been following "dumb" trade policies. He dismissed efforts to pass the TPP in the US as"a figment of people's imagination." . . . Navarro and Ross believe that the United States is already engaged in an economic war that it has lost because the US has failed to engage properly. The Trump economic plan places blame for economic damage squarely at the feet of poorly negotiated trade deals and the failure to enforce them. The “bad deals” include NAFTA, China’s entry into the World Trade Organization, and the US-Korea free trade agreement (KORUS).