NAFTA, trade deals, and Trump

In Unpacked, Brookings experts provide analysis of Trump administration policies and news.

THE ISSUE: President Trump signed an executive order withdrawing the U.S. from the Trans-Pacific Partnership (TPP) days after his inauguration and continuously vows to re-negotiate the North American Free Trade Agreement (NAFTA), which could have serious security and economic consequences for the U.S.

Trade agreements cement close economic ties, lay down the rules for development and growth going forward, and create more stable partners, which often underpin a more stable security environment.

THE THINGS YOU NEED TO KNOW:

• As one of his first official acts, President Trump signed an executive order removing the United States from the Trans-Pacific Partnership (TPP).
• This action—along with repeated promises to renegotiate the North American Free Trade Agreement (NAFTA)—are in line with the protectionist trade policies he advocated on the campaign trail, and continues to promote as president.
• The United States enters into trade agreements with other countries both for economic and security reasons. While trade deals with Canada or Mexico may generate relatively small gains for America’s large economy, these agreements are important for regional security and economic growth.
• U.S.-Mexico trade under NAFTA has helped build a prosperous and increasingly democratic Mexico, which has a positive economic and national security outcome for the United States.
• Trade opponents may highlight the trade deficit—which calculates the difference between exports and imports.
• Imports are not necessarily good or bad for economic growth– it depends how imports are used.
• The use of imports can be a positive driver of growth: If imports are used productively—as imports to business processes—then imports make businesses more competitive, employ more people, and generate more wealth.
• It’s common to renegotiate trade agreements, and NAFTA, which President Trump hopes to re-negotiate, is more than 20 years old.
• Former President Barack Obama talked about renegotiating NAFTA in 2008, which was achieved in the context of the TPP.
• In those negotiations, the U.S. gained improved market access into Mexico and Canada, without having to make any significant concessions.
• Rather than accepting the TPP outcome as an update of NAFTA, President Trump wants to start negotiations over.

THE SOURCES: