January 22, 2018

Trade Has Made America Great

Robert Krol

Senior Affiliated Scholar
Summary

Trump's disdain for NAFTA is likely to cause a drag on the economy and slow growth.

The latest round of NAFTA negotiations begins this week in Montreal. Expect a rehash of previous U.S. demands to change the dispute resolution process and the "domestic content rule" that determines the percentage of a vehicle that must be made in North America in order to cross borders tariff-free. U.S. negotiators will also likely continue to pursue a "sunset clause" for the agreement.

These proposals have not been embraced by Canada or Mexico, and indeed will likely do more economic harm than good. President Trump's general lack of support for the agreement further raises the level of uncertainty, discouraging trade-related investment. This needs to change.

International commerce is already laced with uncertainty. Changes in customer tastes in diverse foreign markets can quickly turn a profitable venture into a losing proposition. Exchange-rate volatility makes international business decisions risky and difficult to manage.

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