WASHINGTON With negotiators in Montreal making little progress on revising the North American Free Trade Agreement, fears are mounting Ohio companies and farmers could be harmed if President Donald Trump scraps the 1994 pact with Canada and Mexico.
Although many financial analysts believe an accord eventually will be reached, Trump throughout his 2016 campaign assailed NAFTA and other free-trade agreements, claiming they left a wake of shuttered factories and unemployed workers throughout Ohio, Michigan, Wisconsin and Pennsylvania.
During his State of the Union address Tuesday, Trump drew a hard line against free trade when he proclaimed the United States has “finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs and our nation’s wealth,” adding defiantly, “The era of economic surrender is over.”
But even as Trump’s tough rhetoric resonates with scores of Americans, a wide array of economists and U.S. business executives fear ending NAFTA would spark a trade war with Canada and Mexico. Such a war would hamper agricultural exports by Ohio farmers, increase prices for Americans and wreak havoc on an integrated automotive supply chain that is vital to Honda’s plant in Marysville.
Some even point to the harsh lessons of the 1930s when the United States imposed steep tariffs on imported goods, provoking a trade war that helped transform the stock market crash of 1929 into a deep depression which threw millions of people out of work.
“If it were to be terminated it would be a disaster for Ohio,” said Edward Hill, a professor of economics at Ohio State University.
Douglas Irwin, a professor of economics at Dartmouth College, said “it would be less likely we would see a crash. But we would see the U.S. displaced in world markets and falling behind.”
Critics of NAFTA and other free-trade agreements, such as Robert Scott, a senior economist at the left-leaning Economic Policy Institute in Washington acknowledge withdrawing from the pact would “be disruptive to say the least.”
“It’s not going to be the end of the world by any means ... there would be tariffs and it would slow down trade,” Scott said. “If we go down that path it would be somewhat costly for the domestic economy and more costly for Mexico and Canada.”
“The NAFTA horse is out of the barn and you can’t reverse that damage just by withdrawing from the deal,” Scott said.
NAFTA wiped out scores of tariffs throughout North America, making it less expensive for U.S. companies and farmers to export their goods. Honda and other automotive companies created a sophisticated supply chain in all three countries as trade mushroomed from $290 billion in 1993 to $1.1 trillion in 2016.
Ohio’s exports have doubled since 2000 and the state’s two largest trading partners are Canada and Mexico. Ohio’s exports of soybeans to all countries, which were negligible in 2000, blossomed to $2 billion in 2016.
“Ohio is a trade state,” Hill said. “Our auto industry is dependent on supply chains that go into Mexico and Canada.”
But during those same years, Scott calculates NAFTA eliminated 700,000 manufacturing jobs in the United States. Manufacturing jobs in Ohio tumbled from 1 million in 2000 to 700,000 at the end of last year, devastating many communities and transforming anti-trade rhetoric into guaranteed applause lines.
“NAFTA was a really bad piece of legislation that shifted the playing field in favor of investors and against working people,” said Scott, who said the pact ushered in a wave of free-trade agreements which accelerated the loss of manufacturing jobs in the United States.
Yet it is not clear whether NAFTA was responsible for those job losses. Even after NAFTA went into effect in 1994, Ohio’s manufacturing jobs held steady at 1 million.
But recessions in 2001 and 2008 combined with intense competition from China and improved productivity wiped out more than 400,000 jobs. Since the depths of the 2009 recession, the state has added roughly 100,000 manufacturing jobs.
“Trade is very visible and easy to be blamed, but technology has a lot more to do with manufacturing job loss than trade agreements,” said Irwin, author of the book, “Clashing over Commerce: A History of U.S. Trade Policy.”
Trump clearly does not accept that argument and his negotiators in Montreal have taken the cue and adopted a rigid posture. The Americans are demanding 50 percent of the content of new cars and trucks come from the United States, which Mexico and Canada have flatly rejected.
In a letter last week to Trump, Sen. Rob Portman, R-Ohio and 35 other Senate Republicans wrote a “wide range of industries in the U.S. have benefited from this agreement and American consumers are reaping those benefits, too.”
They pointedly noted “the next step to advance the economy requires that we keep NAFTA in place, but modernize it to better reflect our 21st century economy.”
For now, nobody seems to know if Trump is bluffing or serious about scrapping NAFTA with Hill quipping, “I cannot comment on the probability of its termination because all my predictions dealing with the Trump administration have been completely inaccurate.”
Jack Torry covers Washington D.C. for The Columbus Dispatch.