NAFTA is a thorn in President Trump’s side, but it’s not the only thorn. Trump has his mind set on disruption in business, politics and press coverage. But the 23-year-old NAFTA agreement between the United States, Mexico, and Canada is not a thorn in economic growth or business prosperity. The agreement is responsible for higher paying jobs all over North America. And NAFTA encourages market competition between farmers, families, and business in all three countries. The trade agreement provides better access to technologies, materials, executive talent, and investment capital. North America is more competitive on the world market, thanks to NAFTA.
The North American Free Trade Agreement is protection against the growing economies in South America and Asia. But there are flaws in the agreement. All three countries know aspects of the agreement must change going forward. Mexico is nervous about the upcoming meeting to address some of the flaws. Mexico has been, without a doubt, the country with the most to lose if some of those flaws disappear. Businesses in Mexico are expanding thanks to global investors, but those investors may go away if NAFTA rules change. According to the U.S. Census Bureau, the U.S. ran a $63.2 trade deficit with Mexico in 2016. Trump is livid about that deficit. But altering the agreement to decrease trade could prompt retaliation from Mexico, and the growth of businesses around the globe will suffer.
Mexico is addressing the trade deficit before the NAFTA meeting next month. The country’s minister of the economy, Ildefonso Guajardo, has a couple of ideas that will reduce the deficit without an import reduction. Mexico’s energy businesses need foreign investors, and Guajardo thinks America oil companies could invest in Mexico’s energy sector. The oil companies could buy the equipment and machinery they need from American companies. Purchasing that equipment in the U.S. would decrease the trade deficit.
Another way to reduce the deficit is to allow American businesses to compete for opportunities in Mexico’s energy sector. That would increase the demand for U.S. made products, according to the minister. Plus, capital appreciation and dividend payments would come back to the United States. More foreign investors in Mexico is a positive for financial markets in the United States and in Mexico.
All three countries know tit-for-tat import/export retaliation measures would hurt the peso and Mexican equity prices. And a reduction in Mexican exports would cause job losses in the U.S., and the trade deficit could increase instead of decreasing. Trump may want to fight, but the best road for American, Canadian, and Mexican businesses is to find careful and considerate adjustments to NAFTA.