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NAFTA Could be Repurposed to Stop Cheap Asian Imports

President Trump has had sharp words for Mexico and the North American Free Trade Agreement dating back to this campaign days. The situation threatened to boil over when Mexico replied with an equally tough retort, saying it would walk if things got out of hand.

Recently the White House issued a letter outlining its plans for the renegotiation of the free trade agreement that seems to indicate things may have simmered down since then.

So now that cooler heads appear to be prevailing, the question remains, what should the two countries be looking for in a revision of the 22-year-old agreement?

A recent article in Quartz suggests that the two nations could benefit more if they were to band together against their common threat. As it turns out, both countries have experienced an influx of Chinese-made goods since that nation joined the World Trade Organization in 2001. And some of those products and materials have undercut trade between the U.S. and Mexico.

For instance, in 2000, at approximately 10 percent and 19 percent of total U.S. imports, respectively, both Mexico and Canada outpaced China. Today, Chinese imports dwarf both, growing from about 8 percent to more than 20 percent.

Similarly, the U.S. has lost a lot of ground to imports into Mexico to China, which has increased from 0 to approximately 20 percent of total imports.

The article suggests that together, the U.S. and Mexico could stem the tide of cheap imports from China to both countries by updating NAFTA’s rules of origin—a plan the White House has already indicated support for. As it stands now, the article says about 50 to 60 percent of a product’s value be created within North America but by increasing that limit, it would cut out inputs from other countries, including China.

There would be potential drawbacks to this tactic however. First, rules of origin, though easier to negotiate than some other issues on the table, could be more tricky to implement. Also, the plan could drive prices for NAFTA products up.

Whether the countries in question will be able to come together on a revised agreement is unknown. The White House has yet to give Congress the 90-day notice required before trade talks can begin.