A Path Forward for NAFTA

The North American Free Trade Agreement (NAFTA) ranks at the top of anyone's list of the most controversial trade deals of all time. Reviled by critics as unfair and as a job destroyer, praised by its defenders as having a documented record of success in spurring economic growth, NAFTA reduced tariff barriers to zero for the United States, Mexico, and Canada and led to a tripling of trade among these three countries over the last 23 years. The Peterson Institute for International Economics (PIIE) has abundantly detailed the many gains and acknowledged costs of NAFTA in numerous publications. Now that President Donald Trump has launched a renegotiation of NAFTA—having at least for the moment abandoned his 2016 campaign pledge to cancel the pact outright—the fundamental question is: Can such a renegotiation produce a positive result? A broad range of experts who have contributed to this PIIE Briefing say "yes." The new negotiations can succeed only if they focus on how the agreement can be updated and upgraded, however. NAFTA can be modernized only if President Trump's zero-sum "America First" agenda is replaced by one that seeks to benefit all three countries and improve their competitiveness in an increasingly competitive global economy. Prioritizing American interests is of course essential in any US trade negotiation. But an obsessive concern about bilateral trade balances and narrow special interests in the United States, as opposed to broader national and regional interests, would not only deadlock the negotiations but also likely lead to inferior outcomes for all three countries, or even a breakdown in the talks and an abrogation of the agreement. And walking away from NAFTA altogether would be disastrous for consumers, producers, and retailers in the United States. As argued in several chapters of this Briefing, abandoning NAFTA would degrade regional competitiveness and terminate jobs across North America, undoing the integration achieved since the agreement's inception.