NAFTA and its implications for U.S. & Mexican businesses

Here’s how the Trump Administration protectionism could impact the North American economy as a whole. Here’s how protectionism is relevant in an increasingly inter-connected world economy.

According to Business leaders attending the U.S. – Mexico CEO conference whose agenda focuses on the North American Free Trade Agreement (NAFTA) which drives an annual turnover of $1 trillion, a no deal would be better than a bad deal.

The meeting, which ran in parallel to talks near Washington, is aimed at revisiting the 1994 landmark agreement between the U.S., Canada and Mexico with businesses united in opposition to a number of radical U.S. proposals which they opine would damage North America’s economy.

U.S. President Donald Trump has made his position clear – in the event of an ability to significantly revise the treaty, he is open to a bilateral trade pact with Canada or Mexico.

“We are all much worse off with a bad agreement than with no (NAFTA),” said Guillermo Vogel, vice president of Tenaris, a steel company.

Meanwhile on the U.S. side, the event was co-chaired by Thomas Donohue, president of the U.S. Chamber of Commerce and Fedex’s CEO Michael Ducker.

The organizers declined to reveal the names of the people who attended the meet.

The process of renegotiating NAFTA has become increasingly sour with Mexico accusing Trump of spoiling for a “protectionist war” with proposals, aimed at balancing trade.

Trump’s proposals include limiting trade in fresh produce, the removal of dispute resolution mechanisms, and the introduction of minimum quotas for U.S. parts in autos.

According to Vogel, if NAFTA were to break apart, it would be a “lose-lose” situation and consequently the the U.S. could see a trade deficit of more than the current $64 billion.

Mexican trade experts say, without NAFTA, U.S. products will face higher tariffs to enter Mexico which will further skew the trade balance.

U.S. suggested rules for auto parts have shocked Mexico since it states that half of all car parts should be manufactured in the United States.

Donohue has also singled out a “sunset clause” that states NAFTA rules would have to be renegotiated every five years.

“Clearly, a clause that cancels the agreement every five years totally defangs it,” said Vogel. “Starting to play with a non-market economy would be terrible for us.”

“With an agreement, in 10 years I see a strong region that can face Asia or China, without an agreement I see a weaker region in the medium and long term,” said Vogel.

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