In a The Hill article published on May 11th, BGS Advisor Jeffrey Kupfer discusses the importance of the North America Free Trade Agreement (NAFTA).
NAFTA is critical to a key Trump-voting state
By Jeffrey Kupfer May 11, 2018, 5:00 PM
As originally appeared in The Hill
While it has been overshadowed by all the other blockbuster news coming out of Washington, D.C., this week also marks a critical juncture for the North America Free Trade Agreement (NAFTA).
U.S., Canadian and Mexican officials have reconvened for yet another round of talks, and U.S. Trade Representative Ambassador Robert Lighthizer has acknowledged that if there isn’t a deal in the next few weeks, then “you start to have a problem.”
A breakdown in NAFTA talks and a U.S. withdrawal from the trade agreement would be most unfortunate, both for the country as a whole and for many states that rely heavily on international trade. Conversely, a modernized agreement is likely to provide new opportunities for U.S. companies and workers.
As one example, let’s consider the energy sector, which is one of President Trump’s priorities. Since NAFTA was signed in 1993, the North American energy situation has undergone a dramatic transformation, which we can see by looking at our energy trade with Canada and Mexico.
From 1993 to 2016, U.S. crude oil and other petroleum exports to Mexico increased almost eight times, and U.S. exports of crude oil and petroleum products to Canada rose 13 times.
During the same time period, U.S. imports of crude oil and petroleum products from Canada tripled, and are now about three times the amount of crude oil imports that we receive from Saudi Arabia. Canada is the No. 1 supplier of crude oil to the U.S and remains our largest energy trading partner.
Mexico is the biggest export market for U.S. natural gas and in 2016, the value of U.S. energy exports to Mexico ($20.2 billion) was more than twice the value of energy imports ($8.7 billion).
Besides the energy sector, NAFTA has supported overall U.S. economic growth. According to the U.S. Chamber of Commerce, an estimated 14 million jobs in the U.S. rely on trade with Canada and Mexico, with around 5 million of those jobs resulting from increased trade as a part of NAFTA.
Dartmouth’s business school dean Matthew Slaughter, writing in the Wall Street Journal, placed the cost of withdrawing from NAFTA at $50 billion per year.
We can also see the impacts of NAFTA at a state level — especially for states like Pennsylvania that supported President Trump in 2016 and will be essential for any reelection bid.
From an energy standpoint, Pennsylvania now accounts for 19 percent of total U.S. natural gas production and 76 percent of total Marcellus Shale production, which is hitting almost 10 billion cubic feet per day.
Much of this gas will flow to international markets, either through LNG terminals like the new Cove Point terminal in Maryland or through pipelines to our neighbors. Since 2009, Mexico has doubled its purchase of U.S. natural gas.
Pennsylvania businesses ship nearly $60 billion in goods and services worldwide, with more than half of those exports going to free-trade agreement markets like Canada and Mexico. Pennsylvania’s top export markets for goods are Canada, Mexico and China. Its top market for services is Canada.
Since NAFTA went into effect in 1994, Pennsylvania’s exports to Canada and Mexico have increased by $11.4 billion (269 percent). According to the U.S. Commerce Department, the vast majority of the over 14,000 Pennsylvania companies that send goods abroad are small and medium-sized businesses.
These businesses, as well as the over 190,000 Pennsylvania workers they employ, depend heavily on the future of NAFTA.
There’s no question that NAFTA could and should be updated. But as negotiations continue, the Trump administration needs to recognize the tremendous benefits that come from trade with Canada and Mexico.
They need to appreciate the importance of retaining the investor-state dispute settlement system — a private right of action before an independent, neutral arbitration tribunal that ensures that American companies are treated fairly in foreign investment disputes.
Business groups have emphasized that these due-process rights are essential for protecting investment abroad and generating jobs at home.
U.S. officials need to pay special attention to the changes in our energy relationships during the last few decades. North America has become an increasingly integrated market, and it is vital to continue the free flow of natural gas, crude oil, petroleum products and electricity across our borders.
This would benefit all Americans, especially businesses and workers in Pennsylvania.