Economist on Trump's NAFTA proposal: Hopefully, cooler heads will prevail

January 4, 2017
In The News

President-elect Donald Trump's campaign promises to renegotiate or even eliminate the North American Free Trade agreement is causing concern in the Borderland.

Signed in 1994, NAFTA eliminated most tariffs on some of the goods traded between the United States, Mexico and Canada.

UTEP Economics professor Dr. Tom Fullerton told ABC-7 he hopes, that in the business sector of the US, "cooler heads will prevail."

Fullerton said dismantling NAFTA and trade agreements "will cause inflation to increase, the business disruptions will be so severe, it will also cause employment to decline and it will cause output to decline along with employment. We'll end up with a recipe for stag-flation, something the United States hasn't seen since the 1970s. That's a combination of higher prices, inflation, lower employment or higher unemployment."

Fullerton said Trump's assumption that the U.S. is losing jobs, that would otherwise stay in the US, to other countries, is a fallacy. "Most of the jobs in manufacturing that have been lost, have been lost to technology," Fullerton added.

However, the economist said he estimates 90 percent of the manufacturing jobs in Ciudad Juarez are tied to NAFTA. "Anything that's done to disrupt those supply chains is going to cause a reduction in the amount in foreign direct investment that otherwise would occur in Ciudad Juarez," Fullerton said, "It would probably cause migration from Ciudad Juarez. It would also lead to higher unemployment here in El Paso. Hopefully, that doesn't materialize."

In an op-ed piece titled "NAFTA 2.0," Congressman Will Hurd (R-El Paso) wrote that he believes there is room to improve the NAFTA agreement.

"Despite the campaign rhetoric," Hurd wrote, "I believe that under a Trump administration we have a real opportunity to improve North American competitiveness in the rest of the world through an upgrade in NAFTA. This belief was confirmed during several days of discussions on energy, commerce and rule of law in Mexico with business and political leaders."

"The White House has a lot of leeway when it comes to assessing tariff penalties against other countries. Trump is angry at Mexico. He's made some false accusations against Mexico and he is doing it under the banner of trying to protect American workers," Fullerton said, "Ultimately, if trade agreements get revoked, it's going to hurt American workers more than American investors."

Fullerton said Trump could change NAFTA on his own without approval from Congress.  "He could declare an economic emergency and raise tariffs on anything from Mexico," Fullerton said.

Hurd wrote that NAFTA supported almost three million U.S. jobs, more than a quarter of the total jobs supported by U.S. exports.

"Supporters of NAFTA have probably inflated the economic gains of the accord and detractors have likely overestimated the resultant job losses," Hurd wrote. "While the economies of the United States, Canada and Mexico have grown, there have been both winners and losers."

"The U.S., Mexico and Canada are not competitors, but partners who build things together," Hurd told ABC-7.