According to an Oct. 11 article in the New York Times, President Donald Trump revealed that the United States may drop out of North American Free Trade Agreement, stating, "It is possible we won't be able to make a deal, and it's possible that we will." In addition to this, the Trump Administration has also proposed limits on the number of government contracts that Mexican or Canadian companies can win. What do you think of the president's opinion, and is it in the best interest of the U.S.? 

Prof. Michael Coiner (ECON)

Economic theory predicts that, in almost all cases, freer trade generates net gains for each participating nation. Studies of NAFTA’s effects estimate net gains for the U.S. (as well as Mexico and Canada). Consumers gain from lower prices on imports, and exporters gain from increased sales. However, not EVERYONE gains from freer trade. Workers whose firms have declined due to increased competition from Mexican or Canadian imports and workers whose firms have moved to those nations have been hurt by NAFTA. American policies did not do enough to help these people re-train or move. Trump’s denunciations of NAFTA during the campaign appealed to them. However, abandoning NAFTA would roll back the net gains that the U.S. enjoys from the agreement. In the larger picture, if the U.S. retreats from the global economy, we run the risk of falling behind other nations who continue to benefit from the gains from trade.

Prof. Michael Coiner (ECON) is a Professor of Economics.

Prof. Ricardo Lopez (IBS)

Dropping out of NAFTA would increase import taxes and, therefore, the price we pay for Mexican and Canadian products. Some U.S. firms may move their factories back to the U.S., which would increase the cost of producing those goods and their prices in the U.S., without necessarily increasing overall employment. Dropping out of NAFTA would also hurt U.S. producers who sell their products in Canada or Mexico, since these products would face higher taxes in those markets. Limiting the number of contracts that Mexican or Canadian companies can win means that the U.S. government would have to buy domestically produced products even if the Mexican or Canadian versions of those products are cheaper. While this would help domestic producers of those goods, it would hurt taxpayers who would end up paying more for government services. We’ll have to wait and see what kind of deal President Trump can get from these negotiations. A better deal for the U.S. would likely involve more cooperation among the three countries and lower barriers to trade, which is not exactly what we are hearing so far.

Prof. Ricardo Lopez (IBS) is an Assistant Professor of Economics in the Brandeis International Business School. 

Prof. Aldo Musacchio (IBS)

It is not clear why the Trump administration is so opposed to NAFTA when, in fact, it has been extremely beneficial to both American farmers and firms that manufacture in Mexico.  Without their operations in Mexico, American companies like Whirlpool wouldn't be able to compete with their South Korean or Chinese counterparts. The renegotiation is also likely to hurt American producers of agricultural products, especially white corn producers from the Midwest. If the US takes an aggressive stance, Mexico could put restrictions on the importation of corn, soy beans, etc., something that could hurt severely the pockets of American farmers. Still, what is puzzling is that President Trump got the highest conversion rates from Democrat to Republican voters in areas that export corn to Mexico; meaning that farmers ended up voting against NAFTA and their own business interests. 

Prof. Aldo Musacchio (IBS) is an Associate Professor of Business in the Brandeis International Business School. 

Prof. George Hall (ECON)

Regardless of whether or not NAFTA was a good idea in the 1990s, it has been the "rules of the game" for the last two decades. In response to these rules U.S. manufacturing firms have transformed themselves creating winners and losers, but ripping up these rules won't turn losers into winners, nor will it return the U.S. to the 1990s. Under NAFTA, manufacturing in the U.S., Mexico and Canada has become tightly integrated so that many of the imports and exports between these three nations are intermediate goods.  Consider the automobile industry — nearly every car produced in North America these days is built with parts from all three countries. Raising taxes on goods flowing across the borders will simply raise the cost of building products in the U.S. — making U.S. manufacturing less competitive relative to Asia and hurting the very workers the president seeks to help.

Prof. George Hall (ECON) is the Fred C. Hecht Professor of Economics. 

Darhan Rzaev ’19

Calling it “the worst thing that ever happened in the manufacturing industry,” President Trump is unequivocally against NAFTA. Although Trump’s statement exhibits his usual over-dramatization, his point holds water. NAFTA is blamed for the loss of over 500,000 jobs, the decline of wages and the rise of the trade deficit in the U.S. alone. However, NAFTA also quadrupled trade between Mexico, Canada and the U.S. and lowered our prices of groceries and gasoline, thereby stimulating economic growth in all three countries. These facts demonstrate the stern difficulty of deciding and proposing an economically viable solution. The truth is, no one knows for certain if or how beneficial NAFTA really is. I believe the overall benefits of NAFTA outweigh our losses, but under an “America first” approach NAFTA does not favor the U.S. Exiting NAFTA is a gamble for the U.S., with repercussions that can unfold for years to come.

Darhan Rzaev ’19 is an Economics Undergraduate Departmental Representative.