President Trump has scapegoated NAFTA -- and free trade generally -- for American manufacturing job problems since he became a presidential candidate.
Now, after initial negotiations to revise NAFTA, Americans will see how the rhetoric compares with the reality. U.S. Trade Representative Robert Lighthizer’s speech faulting NAFTA for America’s trade deficit with Mexico, especially in the automobile sector, indicates that “fixing” that “imbalance” will be a priority. Remember, Trump has threatened a 35% tax on BMWs produced in a new Mexican plant and sold in the United States.
But treating the boom in Mexican car production as the result of insufficient protection for American car producers, to be “remedied” by protectionism, reflects a major misunderstanding that will harm rather than benefit Americans. Actually, that boom is primarily the result of Mexico’s having freer automobile trade with other countries than America has. Thanks to its free-trade agreements, Mexico has tariff-free access to countries that account for 60% of world GDP, an advantage which dwarfs Mexico’s estimated $600-700 per-car labor cost savings over American production.
|Gary M. Galles is a Research Fellow at the Independent Institute, Professor of Economics at Pepperdine University, and Adjunct Scholar at the Ludwig von Mises Institute.|