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Word from the President

By Rufus Yerxa
NFTC President

June 2017

As the Trump Administration begins its consultations with Congress and the American public over what kind of changes the President wants to see in the North American Free Trade Agreement (NAFTA), it is critical for American business to speak up about how trade agreements affect our ability to continue growing production and jobs in this country and to compete with the rest of the world in a globalized economy.

Much of the narrative from opponents of trade liberalization has been focused on the perceived cause and effect between trade agreements generally and the loss of manufacturing jobs in certain sectors highly sensitive to foreign competition. It is an extraordinarily myopic view that disregards the stunning success of all sectors of our economy – manufacturing, services and agriculture – in global competition. If it becomes the guiding logic, it will turn our country towards a dangerously inward-looking set of trade policies and progressively undermine American leadership in opening world markets. That’s why it is so critical for the American people to start hearing the truth from business leaders and politicians alike: While the opening of trade has certainly caused painful declines in certain industries less able to adapt to global competition, an adjustment which calls for much better domestic policy responses, the overall effect of trade on our industries, workers, consumers and economy as a whole has unquestionably been positive.

A close examination of the real facts about trade and the American economy proves this point. Our success in world trade – the internationalization of America’s economy -- has made our GDP over $2 trillion greater than it would otherwise be. We have the largest net job creation in our history, and one out of five of those jobs result from trade. One of every three acres of agricultural production goes to world markets. Our companies, brands and technologies dominate world commerce.

While many politicians focus on manufacturing job losses in certain sectors that traditionally employed large numbers of assembly line workers, they overlook two important facts. First, almost 90% of those job losses have resulted from greater productivity – part of a trend since the 1950s that has seen manufacturing labor decline throughout the entire developed world from over 30% of the work force to around 10% today. In the 1980s it took nearly 12 hours of direct labor to produce a ton of steel, but today it takes less than 3. This is a reality that cannot be changed, and should not be an excuse for turning against open markets. The second fact being overlooked is that, while this trend was occurring, we were also creating millions of new jobs in our most globally competitive sectors. The explosion of the digital economy – dominated by American companies in the Information Technology (IT), internet and digital economy -- played a huge part in this growth. But so too did the success of our global leadership in sectors such as energy, services, machinery and equipment, capital goods, and health products. The phenomenal growth of these industries has fueled a huge boom in our job market and has made America the undisputed technological leader in the new world economy.

America’s leadership in negotiating better trading conditions worldwide has been a major contributor to that success. Nowhere has that been clearer than in our trade with our two North American neighbors. Canada and Mexico are now our two largest export markets, and together they now pay $600 billion annually for American goods and services. Although our exporters still face some problems in these two markets, NAFTA has succeeded in eliminating all tariffs and significantly reducing non-tariff barriers in both Mexico and Canada. As a result, U.S. exports have increased by more than 350% in real terms since the agreement went into effect. The expanding markets for U.S. manufacturers, service providers and agricultural producers have contributed significantly to the bottom line for our companies.

But the gains from NAFTA go beyond increased exports to these two markets. North American integration of our production platforms has helped our industries compete more effectively with producers in Asia, Europe and other regions. In the auto sector, for example, integrated production has lifted our export competitiveness, increasing U.S. exports of autos to over two million vehicles annually – more than five times the volume of exports prior to NAFTA. In our most technologically intensive sectors – such as capital goods, machinery, electronics and IT – the wide-scale integration of production in North America has been critical to maintaining US global leadership in innovation and technological development.

NAFTA benefits our economy in a variety of other ways. Our truck and rail transport companies have a huge stake in the vast movement of goods between our three markets, with more than 100 trains and 5,000 trucks crossing our northern and southern borders each day. Our farmers now export close to $40 billion to Canada and Mexico every year. Our banks, insurance companies and accounting firms have made huge gains selling to both Canada and Mexico, part of the reason we enjoy a $34 billion surplus in services trade with our NAFTA partners. Finally, American consumers benefit every day from a much wider array of goods available at lower prices – from Mexican avocados to Canadian beer.

Any effort to modernize and upgrade NAFTA must preserve these hard-won gains. While it is important to address remaining barriers, especially those affecting the newer technologies and modes of trade that didn’t exist when NAFTA was put in place, any final agreement that diminishes our existing access to these markets will have significant adverse effects on U.S. operations, sales and employment.

NAFTA also has another important benefit: It has given us a much more prosperous, stable and democratic neighbor to our south. Until it began opening up in the 1980s and 1990s by joining GATT and signing NAFTA, Mexico was a one-party state with a highly protected economy, state ownership of most industries, widespread poverty and significant out-migration to the United States. Today, Mexico is a multi-party democracy with a growing middle class, a more open economy, a thriving private sector and net in-migration from the United States. It is worth noting that few big developing countries have opened their economies to a powerful developed partner so completely. In fact, U.S. exports to Mexico now represent 20% of its GDP, a remarkably high percentage (by way of contrast, imports from Mexico represent only 1.8% of our GDP).

It is vital to ensure that negotiations to improve NAFTA be guided by the objective of strengthening our trade ties with our North American partners while also improving conditions of access for U.S. producers and exporters. NFTC members are prepared to work closely with U.S. negotiators to identify key potential gains for the United States from an effort to modernize NAFTA. We believe there are many ways the agreement can be improved. In particular, we see important gains to be made from new commitments in areas not contemplated when NAFTA was negotiated over 20 years ago – especially in fields like digital trade, e-commerce, state-owned enterprises and small and medium sized enterprises. These “upgrades” of NAFTA will set important precedents for any future negotiations with Asia or Europe, and thus it is important to make sure the result of these negotiations can become the template for a new era of trade cooperation.

We are now in the midst of a crucial debate about how best to expand growth and opportunity for Americans. Do we seek to do so through defensive measures that seek to restore market share for a few domestic industries, or do we continue the march towards a more open world where American know-how, innovation and entrepreneurial skill will set the pace, and where our producers and workers will have a chance to sell to the 95% of the world’s consumers who live outside our borders? In the coming months, as the Administration’s effort on renegotiation of NAFTA unfolds, that question will need to be answered.


"A Word From the President" is written by NFTC President Rufus Yerxa. If you have questions or comments, please forward them to ryerxa@nftc.org.

For more information or to get involved, contact Marshall Lane at (202) 887-0278 or email mlane@nftc.org.