President Trump has scapegoated NAFTAand free trade generallyfor 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 Lighthizers speech faulting NAFTA for Americas 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 Mexicos 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 Mexicos estimated $600-700 per-car labor cost savings over American production.