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Reversing NAFTA
ImpactECON announces a new working paper that examines the impact of reversing NAFTA on supply chains and employment
In July, the USTR announced that the first round of new negotiations on NAFTA will take place between the US, Canada and Mexico on August 16-20, 2017. USTR also released their negotiation objectives.
In this paper we examine the impact of the United States (US) extricating itself from the NAFTA. US tariffs on imports of goods from Canada and Mexico, currently covered under the NAFTA, are assumed to rise to US most favored nation (MFN) rates, compelling Canada and Mexico to reciprocate under World Trade Organisation (WTO) rules. Overall, the results show that the US’s reversal of NAFTA leads to a decline in real GDP, trade and investment in the US, Canada and Mexico, with most of the losses resulting from Canada and Mexico’s reciprocation. The losses in low skilled employment are most significant, with employment declining by 256,000, 125,000, and 951,000 in the US, Canada and Mexico respectively. Production and specialization of production across the NAFTA region declines, particularly in those sectors with the highest levels of vertical specialization across NAFTA. The motor vehicles and services sectors in all three NAFTA countries decline, along with production of US meat, food, and textiles; Canadian chemicals and metals; and Mexican textiles, wearing apparel, electronics and machinery.