Since the days of FDR, it has been customary to grade new presidents on their first 100 days in office. April 29 was Day 100 for Donald Trump, and by most accounts, he turned in a less-than-exemplary performance. Among other failures, his immigration orders met with considerable judicial resistance, his attempt to squeeze a tax reform bill into the first 100 days was a minor disaster, and he brought the federal government perilously close to shutdown.
Whether fair or not, I suppose what President Trump's first 100 days will be most remembered for are his broken promises and frequent changes in position. For example, it now appears the Chinese are not currency manipulators, and NATO is no longer obsolete.
But turning to the supply chain, one promise is better off broken. Throughout the campaign, Trump promised to withdraw from the North American Free Trade Agreement (NAFTA), which he once called "the worst deal ever." As recently as Day 99, he was prepared to terminate U.S. participation. What apparently stopped him were two telephone calls—one from President Peña Nieto of Mexico and the other from Canadian Prime Minister Justin Trudeau. Both asked him to reconsider and renegotiate, rather than withdraw. He agreed to do so, and hopefully, the "renegotiation" will not be too heavy-handed on our part. Mexican officials have already said they would not negotiate with a gun to their head, and for the U.S., this could very well be one of those "be careful what you wish for" moments.
Is Trump right in his negative assessment of NAFTA? It's true that some U.S. businesses have moved manufacturing to Mexico. Take the automakers, for instance. After the deal's passage, the automobile manufacturers wasted no time opening operations south of the border, where they could take advantage of cheap Mexican labor. Mexico now accounts for about 20 percent of North America's auto production, up from 3 percent in the 1980s, and its share is expected to reach 25 percent by 2020. Honda, Nissan, Audi, Ford, General Motors, and Chrysler all manufacture in Mexico. (And all of these companies would stand to lose if a 35-percent tariff were slapped on each auto they sent to the U.S., as President Trump has threatened to do.)
But did NAFTA cost us jobs? Yes and no. According to the Economic Policy Institute, about 800,000 jobs were lost to Mexico between 1997 and 2013, but it's not as simple as that. NAFTA also created jobs—jobs that far outnumber the 800,000 that were lost. The U.S. Chamber of Commerce estimates that about 6 million jobs depend on trade with Mexico, and there have been studies that show that we've lost more jobs to automation than to Mexico. That's led some to conclude that President Trump has his eye on the wrong ball. In fact, according to a recent report from PricewaterhouseCoopers, 38 percent of U.S. jobs are at high risk of being replaced by automation over the next 15 years, which is far more concerning than competition from Mexico.
Most informed experts believe that terminating NAFTA would be disastrous. In a recent presentation to a Canadian business audience, Tom Donohue, president and CEO of the U.S. Chamber of Commerce, said, "Withdrawing from NAFTA would be devastating for the workers, businesses, and economies of our countries."
Killing NAFTA would cost us millions of jobs that depend on trade with Mexico. And it would in no way guarantee that manufacturers would bring jobs back to the U.S. If costs in Mexico were to rise, companies would likely move their operations to the next low-cost country. Somehow, antagonizing our next-door neighbors doesn't seem like real good politics to me, especially when they bring so much to the table.
Gartner, Inc.