FORBES: NAFTA Withdrawal Would Increase, Not Lower, U.S. Trade Deficit With Mexico




November 7, 2017 | By: JOHN BRINKLEY–   

If President Trump thinks withdrawing from NAFTA will reduce the U.S. trade deficit with Mexico, he’s in for an unpleasant surprise.

If the United States is no longer a NAFTA party, Canada, Mexico and the U.S. will revert to Most Favored Nation status as members of the World Trade Organization. Each country agreed to limit its tariffs to a certain level when it joined the WTO.

The United States’ average applied tariff on imports from countries with which it has no free trade agreements is 2.8%. Mexico’s is 4.5%, according to the World Bank. If freed from NAFTA, the Trump administration could raise tariffs on Mexican imports, but under WTO rules, it would have to raise them equally on imports from all its other non-FTA trading partners.

Presumably, NAFTA will stay in effect for Canada and Mexico, and they will continue to trade duty-free.

U.S. Trade Representative Robert Lighthizer has put demands on the negotiating table that are anathema to Canada and Mexico. He has reportedly offered nothing in exchange. It’s hard to believe that he expects to be taken seriously.

He has demanded that Mexico raise its minimum wage. He has proposed increasing NAFTA’s domestic content requirement to 85%, from 62.5%. He has demanded that Canada scrap its dairy supply management system. He has proposed adding a sunset clause, under which NAFTA would automatically terminate after five years unless all three countries agreed to keep it alive. Neither country will agree to any of these demands.

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