The Trump administration has been outspoken in its criticism of NAFTA, which the president has called “the worst deal ever made”. This column, taken from a recent Vox eBook, argues that reversing the current NAFTA policy environment would not simply wind back the clock to the pre-agreement economy from 20-plus years ago. Instead, it would throw spanners and blockages into today’s very different and deeply integrated North American economy.
This column first appeared as a chapter in the Vox eBook, Economics and policy in the Age of Trump, available to download here.
The Trump administration has been outspoken in its criticism of the North American Free Trade Agreement (NAFTA), which the president has called “the worst deal ever made”. This disparagement is not just campaign season hyperbole. Closing in on his hundredth day in office, Trump reportedly drafted – though ultimately nixed – an Executive Order withdrawing the US from the agreement (Financial Times 2017). He has also repeatedly issued public promises to renegotiate or withdraw from the pact: “If they don’t treat [us] fairly, I am terminating NAFTA.”1 At the same time, supporters of the deal predict calamitous effects of raising barriers between the US and its two closest trading partners, Mexico and Canada.
Here’s the thing: while NAFTA may have done little to boost or harm overall growth and prosperity on the continent, it has had a powerful role in redefining how and where products are made.2 And so even if NAFTA had been a raw deal, abandoning the agreement could have devastating consequences, especially in the near term.
Like it or not, the fortunes of North American firms, workers and consumers are now deeply intertwined through a dense network of regional and global supply chains. This interconnectedness makes the North American economy more competitive with the rest of the world, but also leaves it vulnerable to policy changes.
Pulling out of NAFTA would send widespread and long-lasting shock waves throughout the North American economy. To understand why, it helps to first appreciate the extent to which the deal has shaped the current economic landscape of the US, Canada, and Mexico
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