BUSINESS

What Happens If NAFTA's Cancelled? U.S. Hasn't Looked Into It

The Trump administration may be inching towards a pullout, without doing its homework.

10/20/2017 15:49 EDT | Updated 10/20/2017 15:50 EDT
Jonathan Ernst / Reuters
U.S. President Donald Trump, flanked by Treasury Secretary Steven Mnuchin (left), U.S. Trade Representative Robert Lighthizer (2nd right) and Commerce Secretary Wilbur Ross (right), at the White House in Washington, D.C., August 14, 2017. Neither Congress nor the Trump administration have studies the impact of a withdrawal from NAFTA.

WASHINGTON — American policy-makers admit they have not worked to analyze the economic impact of the end of the North American Free Trade Agreement, even as President Donald Trump threatens to cancel the agreement.

That absence of research applies to both elected branches of the U.S. government: neither the White House nor congressional researchers have an impact assessment, despite uncertainty over the fate of the 23-year-old pact.

Frustrations at the bargaining table exploded into the open at the last round where the most common conversation topic in the hallways involved whether Trump's team was intentionally trying to sabotage a deal.

Watch: NAFTA teeters as talks fail to ease tensions

A research unit for Congress, the U.S. Government Accountability Office, which performs studies for lawmakers, tells The Canadian Press that it has in the past conducted analysis on international issues like the monitoring of Iran's nuclear program, but nobody has yet requested research on NAFTA.

"We have not been asked to look at the (NAFTA) issue," said an official there.

It's the same at the White House. Donald Trump's trade czar, Robert Lighthizer, says he hasn't yet done the research. In an exchange with U.S. reporters this week, he said his current focus is trying to get a deal, not study life without NAFTA.

The countries have pushed the negotiation schedule into next year, shelving talk of a quick easy agreement.

"You always think about what might happen, but we haven't done any analysis of that at this point," Lighthizer was quoted saying by Inside U.S. Trade. "No, we don't really have a plan beyond trying to get a good agreement...

"(But) if we end up not having an agreement, my guess is all three countries will do just fine."

Aaron Bernstein / Reuters
U.S. Trade Representative Robert Lighthizer speaks at a news conference prior to the inaugural round of NAFTA renegotiations, Washington, D.C., August 16. Lighthizer says he has not studied the potential impact of the U.S. withdrawing from NAFTA, but "my guess is all three countries will do just fine."

Some Washington trade-watchers find that stunning.

Duncan Wood, a Mexico expert, said the U.S. is certainly acting like it wants to leave the pact, putting forward proposals the other countries could never accept. Wood said he fears the Trump administration is inching toward a pullout — without doing its homework.

"That doesn't make me feel very good when I go to bed at night," he told a panel this week at the Washington International Trade Association.

"If they were taking these decisions based upon years and years of studies and saying, 'You know what, we think we'll be absolutely fine, because the stats show it,' I could say, 'Okay, fine, I get it, I may disagree, because I like Mexico, but for the United States, I get it'...

"(But) that (absence of research) worries me."

"I actually am terrified about what's about to happen."Duncan Wood, Mexico expert

He cited the poultry trade as just one example of the complex potential consequences.

Producers sell different chicken parts to different markets, based on local preferences. He said Mexico's huge chicken tariffs would lead to an oversupply of dark meat on the U.S. market; a shortage in Mexico; and chicken plants moving to Mexico.

But he said broken cross-border supply chains aren't what worries him most. Wood expressed fear that the current fight at the NAFTA table is a prelude to a bigger battle against the World Trade Organization and international trading system: "These are dark days, my friends... This is near-apocalyptic what we're looking at. I don't mean to exaggerate. I'm not one for hyperbole.

"I actually am terrified about what's about to happen."

George W. Bush takes a stand against protectionism


The last Republican president expressed similar concerns.

George W. Bush delivered a gloomy speech this week that, without mentioning Donald Trump, warned about the degradation of American democracy, mean-spiritedness, racism, conspiracy-mongering, and attacks on open commerce.

"Free trade helped make America into a global economic power," Bush said. "We see a fading confidence in the value of free markets and international trade — forgetting that conflict, instability, and poverty follow in the wake of protectionism."

Brendan McDermid / Reuters
Former U.S. President George W. Bush speaks after being honored with the Sylvanus Thayer Award at the United States Military Academy in West Point, New York, U.S., October 19, 2017. Bush delivered a gloomy speech this week warning about the degradation of American democracy, mean-spiritedness, racism, conspiracy-mongering, and attacks on open commerce.

He said policy-makers should be sensitive to the painful effects globalization has had on some industries: "People are hurting. They are angry. And, they are frustrated. We must hear them and help them. But we can't wish globalization away, any more than we could wish away the agricultural revolution or the industrial revolution."

The Canadian government says it's been studying a variety of NAFTA contingency scenarios since last August, although that work has primarily involved the legal and political questions surrounding a breakup.

As for the economics, the former head of Foreign Affairs' computer-modelling unit, Dan Ciuriak, said he's working on a paper on different scenarios for the C.D. Howe Institute. His preliminary estimate is that the most drastic result — the end of free trade in North America — would see Canada's economy contract 2.5 per cent long-term, with a larger shock in the short term.

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