Withdrawing from NAFTA Would Hit 187,000 US Exporting Jobs, Mostly in Heartland

This blog post has been updated to include a scenario under which the Canada–United States Free Trade Agreement (CUSFTA) is kept intact while the United States withdraws from North American Free Trade Agreement (NAFTA). The post was originally published November 16, 2017.

An analysis of US jobs that rely on exports to Canada and Mexico finds that withdrawing from the North American Free Trade Agreement (NAFTA) would cost 187,000 of those jobs over a 1- to 3-year period or possibly longer, if the Canada–United States Free Trade Agreement (CUSFTA) were also terminated.[1] (By comparison, from 2013 to 2015, a total of 7.4 million US workers were displaced, or lost their jobs involuntarily.[2]) The most affected states are Arkansas, Kentucky, Mississippi, and Indiana. The most affected sectors are autos, agriculture, and manufacturing (non-auto).

If the United States were to withdraw from NAFTA, while CUSFTA remained intact, the model shows 107,000 exporting jobs would be displaced, or 43 percent fewer than in the first scenario. The same states and industries would be the most affected, though agriculture would be harder hit than autos.

These estimates are based on the latest available World Trade Organization’s (WTO) most favored nation (MFN) tariff rates that would apply to US exports to Mexico without NAFTA or both Mexico and Canada without NAFTA or CUSFTA—and the fact that higher prices of US-made or grown exports will dampen sales to Canadian and Mexican consumers.[3] The analysis assumes that firms would then cut production, leading to US job displacements.[4] These estimates do not take into account the potential disruptive impact on supply chains from an elimination of NAFTA or investment uncertainties. It is unclear whether the Trump administration is considering terminating CUSFTA, which was suspended when NAFTA entered into force in 1994 but was never revoked. US Trade Representative Robert E. Lighthizer accused Canada on January 29, 2018 of launching a “massive attack on all of our trade laws.”

IMPACT BY STATE FROM NAFTA WITHDRAWAL

IMPACT BY INDUSTRY FROM NAFTA WITHDRAWAL

MOST AFFECTED COUNTIES

Notes

1. Job loss figures refer to current positions in these sectors and displacement of those workers. Total US employment will not necessarily be lastingly affected.

2. US Bureau of Labor Statistics. Displaced workers are defined as persons 20 years of age and older who lost or left jobs because their plant or company closed or moved, there was insufficient work for them to do, or their position or shift was abolished.

3. MFN rates are based on the latest available data for traded items in 2016 for Canada and 2015 for Mexico.

4. This is a “shock” scenario without any explicit modelling of the dynamic adjustment process. These figures do not account for any potential change in US tariff rates on imports or how exports are moved from place of production to the country of destination, so locales that intermediate trade, especially in California and Texas, may experience more significant losses. The researchers used a simple estimate of demand elasticities with MFN tariff rates. The multiplier model then takes that decline in US exports and estimates what would happen to US production of those exports and to production of all goods that are directly and indirectly linked to those exports (e.g., steel into autos, coal into steel, etc.). It is then assumed that employment falls with the decline in production. The downscaling methodology and data used in this analysis is described in chapter 2 of the PIIE Briefing Assessing Trade Agendas in the US Presidential Campaign (September 2016), by Marcus Noland, Gary Clyde Hufbauer, Sherman Robinson, and Tyler Moran.