Does Wilbur Ross Want to Make Mexico Poorer, or the U.S. Richer?
Commerce Secretary Wilbur Ross has come up with a unique way to evaluate a trade agreement. He doesn’t seem to mind so much if the United States’ economy would be hurt by the end of NAFTA, so long as Mexico would be hurt more. He’s quite prepared to cut off his nose, just so long as his face bears the brunt of the injury.
The end of NAFTA "would be far more damaging to them than to us," Ross told a business conference organized by the Wall Street Journal last week to discuss renegotiating the trade partnership bonding the US, Mexico and Canada.
This ‘them-and-us’ formulation is reminiscent of the reaction to a political economy professor who used to launch his first-year economics class by asking students whether the United States would be better off to have a 4 percent economic growth rate while the world is enjoying a higher growth rate of 5 percent, or whether the U.S. would be better off with a 3 percent growth rate if it was higher than an average global growth rate of 2 percent. Amazingly, a majority of students raised their hand to indicate they would prefer a lower national growth rate if it was higher than the world average. Hopefully, by the time they completed the course they understood an economy is better off if it grows more, not if its neighbors grow less.
Ross should have taken that class. If he had, he might understand that how well we live depends on how well we grow our economy, not by whether we grow our economy more or less than another country. If I receive a pay raise, it doesn’t bother me if my neighbor receives an even bigger one. It would bother me a lot more if I received a pay cut, regardless of what happened to someone else’s salary.
Ross himself said the Administration “mainly wish(es) to reduce the trade deficit is by increasing our exports as opposed to constricting imports.” But the word mainly is what poker players call a tell. The implication is that reducing imports is also an acceptable way to reduce the trade deficit.
The fact is, the U.S. economy would be seriously hurt if NAFTA were to fall apart, regardless of the impact that would have on Mexico. An analysis conducted by the Peterson Institute for International Economics found that withdrawal from NAFTA would cost 187,000 U.S. jobs over three years, primarily in the auto industry, agriculture, and non-auto manufacturing. These estimates are based on the latest available World Trade Organization’s (WTO) most favored nation (MFN) tariff rates that would apply to U.S. exports without NAFTA, and the negative impact that higher prices of U.S.-made or grown exports would have on sales to Canadian and Mexican consumers. Moreover, these estimates are conservative. They do not even take into account the potential disruptive impact that the end of NAFTA would have on supply chains, perhaps the most important impact, especially for the auto industry.
Ironically, the biggest price for the end of NAFTA would be borne by states that supported Donald Trump in last year’s presidential election, an analysis by the Chamber of Commerce found. Hardest hit would be Michigan, symbol of the rust belt region that has seen a sharp decline in manufacturing employment. But despite the opposition to NAFTA among many in the auto state, it would be most vulnerable if NAFTA were to be scrapped. About 40 percent of Michigan’s GDP depends on trade, the highest among all states. And 65 percent of the state’s exports go to Mexico and Canada.
In fact, the Detroit metropolitan region’s exports to Mexico are greater in both absolute value and in proportional share than those of any other U.S. city, according to Ross’ own Commerce Department.
Second-hardest hit would be Wisconsin, which sends more than 45 percent of its exports to Canada and Mexico. North Dakota, Texas and Missouri round out the five states that are most vulnerable to an end to NAFTA. All 12 states that would be hurt most by the end of NAFTA voted for Trump. Nine of them are rust belt or farm belt states.
Does Ross really believe that a midwestern manufacturing worker who loses his or her job would gain any solace from the fact that someone in the Mexican Maquiladora lost their job as well? Would an Iowa farmer feel better about being able to export less of his crop, if a Mexican farmer took an even bigger hit? People want to become better off, not make someone else worse off.
It’s especially distressing that the commerce secretary sees NAFTA negotiations as one would a football game, where the objective is just to do better than the other team. The goal of a trade deal is to make people better off, rather than to make someone else worse off. NAFTA is hardly a win-lose game; it has been win-win-win – with all three countries increasing their exports dramatically – and can continue to be.
The job of the commerce secretary is to increase commerce, not undermine it. Ross should realize that less commerce is bad for both consumers and producers. The goal isn’t to beggar our neighbors – it’s to enrich ourselves.