The U.S. Must Tread Carefully In Renegotiating NAFTA

Joanne Butler Contributor
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President Trump’s actions against steel imports have reopened interest in the NAFTA update discussions. But the President should understand that the decades-old agreement is like a mechanical watch, with many interlocking pieces. If one part is changed, will the watch keep working? Secondly, the U.S. has its own subsidy issues, and we don’t come to the negotiating table with completely clean hands.

Cow-calf operations are a good example of NAFTA’s interconnectedness. An American cattle rancher can ship his/her calves to Canada or Mexico (if grain is cheaper there) to grow and be fattened. The cattle are shipped back to the rancher who may keep them for a few weeks to finish the fattening process, then the cattle are sent to the meat packer’s plant. This is a routine, practically seamless production process.

The seamlessness of operations under NAFTA encourages firms to open plants on both sides of the border. Cars and car parts travel to plants in all three NAFTA countries.

Increasing trade with Mexico is a policy that’s been around for a half-century. When a U.S. agricultural worker program (braceros) expired in the sixties, Mexico looked to establishing free-trade zones known as ‘maquiladoras’. In these zones on the Mexican side of the border, workers would assemble goods made with U.S. inputs (entering Mexico duty-free), and then ship the final product to the U.S. (also duty-free).

Over the last half-century, maquiladoras have spread beyond Mexican border towns and conduct assembly work for customers worldwide, including China.

In the beginning, maquiladoras were garment factories. Now they are sophisticated high-tech production operations. And they are growing; the Yucatan government recently announced the upcoming opening of five of maquiladoras worth $2 billion.

While one might condemn maquiladoras of stealing American assembly jobs, the trade-off is they’re using U.S. inputs. Consider China: if a product is assembled in China, it’s likely the inputs would be Chinese too. It’s unlikely they’d be American.

Turning to the ‘clean hands’ issue, the President should know the U.S. has its own subsidy issues – sugar, for example.

The Department of Agriculture’s sugar program supports U.S. sugar cane producers (mostly in Florida) and sugar beet producers (in border states including Michigan and heading west). It does so by strictly limiting the amount of imported sugar.

This program is a boon to the small group of sugar producers, but has resulted in the loss of thousands of U.S. jobs in the sugar-containing products sector.

Take a stroll through your local supermarket. On the reverse side of many candy and cookie packages, you’ll see “Made in Canada” or “Made in Mexico”. The reason: U.S. sugar prices are double the world market price.

Further, the sugar program protects low-skilled U.S. farm labor jobs. However, the U.S. jobs lost were in value-added manufacturing. They required higher skills and were higher-paid. The U.S. Census Bureau estimated 123,000 U.S. jobs were lost from 1997-2015 due to the sugar program. Further, the National Confectioners Association says the sugar-containing product sector employs about 600,000 Americans – implying these jobs are at risk too.

Last November, House and Senate members introduced a bipartisan bill (H.R. 4265) to overhaul the 80-year-old sugar program. Senator Pat Toomey’s press release has a plain English explanation of the bill. It also has Representative Danny Davis’ (D-IL) noteworthy comments. Davis says his district (IL-7) was once home to Brach’s Candy; in 1987 it was Chicagoland’s sixth-largest manufacturer, with 4,000 employees. That plant is shuttered now. Davis states the sugar program puts 7,000 Illinois jobs at risk today.

The message to the President: This is no longer the 1960s, when slapping higher tariffs on imports was a no-brainer solution for lost American jobs. The U.S. economy is more complex today, with inputs and goods constantly crossing borders.

When there’s an outright trade violation, we must take action. But we need to clean up our own act too – by ending U.S. rules and restrictions that zap Americans’ wallets and kill American jobs.

Joanne Butler is a graduate of the Kennedy School at Harvard, was a professional staff member (Republican) at the House Ways and Means Committee, and served in President George W. Bush’s administration. The Ghanaian poet, Kwesi Brew, has described her as ‘vibrant.’

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

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Joanne Butler