12:00 am
October 27, 2017
President Trump has been suggesting that the U.S. could withdraw from the North American Free Trade Agreement (NAFTA). For example, The Hill reports that earlier this week, “He told the senators that the United States may need to start the six-month withdrawal process to reach a better agreement with Canada and Mexico. Trump has previously suggested that this threat of withdrawal could lead to concessions by the trading partners.”
On Wednesday, many food and agriculture groups sent U.S. Secretary of Commerce Wilbur Ross a letter outlining how harmful such a threat is to the U.S. food and agriculture industry. It was signed by Washington’s Northwest Horticultural Council and Northwest Grain Growers. Agriculture is an important part of Washington’s economy—in 2016, the value of agricultural production here was $10.6 billion, and Washington is a top U.S. producer of many commodities.
The groups write, “We respectfully submit that notification of NAFTA withdrawal would cause immediate, substantial harm to American food and agriculture industries and to the U.S. economy as a whole.” The letter includes some specifics on the impacts to particular industries. For example, “When Mexico applied temporary retaliatory tariffs to apples, cherries, and pears beginning in 2009, losses reached $65 million per crop year, presaging some of the damage that could be done from a full NAFTA withdrawal.” Indeed, Jim Bair of the U.S. Apple Association writes in the Wall Street Journal, “America’s apple industry—valued at $4 billion at the farm-gate, or wholesale value, and estimated to create $15 billion in related downstream economic activity annually—has thrived under Nafta.” (Washington produces 64.9 percent of U.S. apples.)
Even just a notice of withdrawal would be harmful, according to the letter:
While it has been asserted that negotiations could be completed and a new agreement approved subsequent to issuance of notice of withdrawal, but prior to actual withdrawal, that observation gravely underestimates the business complexity and contracting periods involved. We are sadly confident that issuance of a notice of withdrawal from NAFTA would trigger a substantial, immediate response in commodity markets as market-specific focus would turn to a scheduled return to trade-prohibitive tariff rates. Contracts would be cancelled, sales would be lost, able competitors would rush to seize our export markets, and litigation would abound even before withdrawal would take effect.
Similarly, Richard Epstein writes of the possibility of the addition of a five-year sunset clause,
Categories: Categories , Economy , Energy & Natural Resources.Putting in place a guillotine is madness. Investment and trade relationships need long-term time horizons to allow businesses to avoid having to write off their front-end costs immediately. The uncertainty that a sunset provision creates would cripple investment and trade even if NAFTA were otherwise retained. The case for free trade is so compelling that a far longer period is appropriate; renegotiation must be centered on bringing new goods and services into the free trade fold, not on blowing up the agreement entirely.
Tags: trade