Publish in Perspectives - Monday, June 13, 2016
The US exports more to Mexico than to all the rest of Latin America, and more than we export to Germany, France, Great Britain, and the Netherlands combined, Carla Hills points out. Here trucks crossing the US border. (Photo: US Department of Transport)
Carla Hills signs NAFTA in December 1992 flanked by Mexican trade minister Jaime Serra Puche and Canadian trade minister Michael Wilson, while presidents Carlos Salinas and George Bush and Canadian prime minister Brian Mulroney look on. (Photo: USTR)
Donald Trump is apparently unaware that today Mexico is our second largest export destination.
BY CARLA A. HILLS
What would be the impact of a Donald Trump presidency on US-Latin America trade?
Based on his public statements that he would impose 45 percent tariffs on China, a 35 percent tariffs on Mexico, and 10 percent tariffs on the rest of the world, I would expect a sharp disruption of our trade with Latin America and beyond.
Professor Peter A. Petri, a respected economist from Brandeis University calculates that such measures would drive U.S. exports down $658 billion and import down $383 billion raising prices for U.S. businesses and consumers. Moody’s Analytics figures that the United States would fall into recession causing more than 4 million American workers to lose their jobs. Dr. Gary Hufbauer a highly respected expert on trade and economic issues at the Peterson Institute for International Economics is quoted as saying that he believes “the shock would be a tsunami in the world economy.” I agree.
Most of Mr. Trump’s attacks have been directed toward Mexico and the North American Free Trade Agreement (NAFTA). He is apparently unaware that today Mexico is our second largest export destination. We export more to Mexico than to all the rest of Latin America, and more than we export to Germany, France, Great Britain, and the Netherlands combined. Losing that market would be devastating. Our industries, including the auto industry, have become highly integrated. We not only sell things to one another, we make things together. Every dollar of goods we import from Mexico contains forty cents of U.S. content. We also benefit from Mexico’s exports beyond North America, for on average every dollar that Mexico exports abroad contains fifty cents of U.S. content.
Were the United States to impose Mr. Trump’s proposed tariffs, I have no doubt that Mexico as well as the rest of the world would react by imposing retaliatory tariffs on sectors critical to our economy. And they would have legal justification for doing so, for the actions Mr. Trump proposes would violate both our commitments governed by the World Trade Organization (WTO) and those made in the NAFTA not to raise our tariffs above levels we have specified. Under the WTO our bound tariff for imported autos is 2.5 percent. Under the NAFTA, autos with 60 percent North American content enter our country duty free. To violate those commitment would justify not only Mexico’s and Canada’s retaliation under the terms of the NAFTA, but also permit the 162 members of the WTO that are adversely affected to retaliate.
Apart from the devastating impact that an onslaught of retaliatory actions would have on our economy, our blatant violation of our international commitments would destroy our global credibility and leadership. Inward investment would evaporate. Trade would shrink. Jobs would be lost.
Dr. Hufbauer calculates that the opening of global markets since the World War II has increased our nation’s GDP by roughly one trillion dollars. We must make every effort to avoid adopting policies that would destroy not only these very substantial economic benefits but also our reputation as a reliable partner.
Ambassador Carla A. Hills, Chair and CEO of Hills & Company, served as US Trade Representative from 1989 to 1993, during which time she led the US negotiations with Mexico and Canada for the North American Free Trade Agreement. She wrote this column for Latinvex.
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