President-elect Trump recently targeted General Motors Co. and Ford Motor Co. over trade issues, threatening to impose import taxes based on their overseas manufacturing. The retail and manufacturing industries responded quickly, condemning such measures and the resulting cost to American consumers. Trump has made numerous claims about overhauling U.S. trade policies, but what is the real potential for major change and how will it impact our local economy?
Trump vowed to renegotiate or terminate the North American Free Trade Agreement (NAFTA). Is this possible? Probably.
Though the President arguably can pull out of NAFTA without Congressional approval, the political and economic realities likely do not support such a unilateral move. If the U.S. did successfully withdraw, the agreement would remain in force between Mexico and Canada, leaving the U.S. as the outside man. Similarly, withdrawal without Congressional approval would release Mexico and Canada from obligations, leaving only the U.S. bound to the statutorily implemented NAFTA rules. U.S. companies could lose access to relied upon NAFTA dispute resolution mechanisms.
Moving forward, the U.S. and Canada could reestablish the Canada-United States Free Trade Agreement, but U.S.- Mexico trade relations would revert to World Trade Organization agreements and disproportionately increase duties between the U.S. and Mexico. Taxes on imported Mexican goods would increase only an average of about 3.5 percent, while tariffs on certain U.S. exports to Mexico could skyrocket to 36 percent.
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