Foon Rhee

What will President Trump do to NAFTA?

President Donald Trump shows off an executive order Jan. 23 to withdraw the U.S. from the 12-nation Trans-Pacific Partnership. On Thursday, his administration started the process to renegotiate the North American Free Trade Agreement.
President Donald Trump shows off an executive order Jan. 23 to withdraw the U.S. from the 12-nation Trans-Pacific Partnership. On Thursday, his administration started the process to renegotiate the North American Free Trade Agreement. The Associated Press

With all the chaos and scandal swirling around the White House, it can be easy to lose sight of President Donald Trump’s immense power to shape America’s role in the world.

We’ll be reminded when he leaves Friday on his first trip abroad as president that he commands the military, directs our diplomacy and controls trade policy.

When Trump torpedoed the proposed Trans-Pacific Partnership on his fourth day in office, it was a big blow to California’s trade economy.

But if he tears up the existing North American Free Trade Agreement – on Thursday his administration officially started the renegotiation process – the impact could be much greater.

That’s according to the U.S. Chamber of Commerce and California Chamber, which back their pro-trade views with some numbers. The 23-year-old deal with Canada and Mexico has added 5 million jobs, says a U.S. Chamber study. That includes more than 575,000 in California, the most of any state.

It’s worth noting that seven of the 10 states with the most jobs gained went for Trump last November. So did seven of the 10 states with the highest exports to Canada and Mexico. California ranks second on that list.

The U.S. Chamber put out the rosy jobs report – “NAFTA Triumphant” – to mark 20 years of the trade agreement. It’s getting a new round of attention with Trump’s crusade against what he has called the “worst trade deal” in world history. Labor unions long have been on the warpath to kill NAFTA, blaming it for destroying manufacturing jobs, driving down wages and damaging America’s prosperity.

I wanted to hear more from the other side. So I talked this week to Everett Golden III, president of Otis McAllister Inc., a retail food distributor that employs 65 people at its Oakland headquarters, works with growers and planters in California, operates in 80 countries around the world and has its brands in 3,500 stores across the country.

He told me that NAFTA has been “a huge, huge benefit” to his operation. In 1995, Mexico levied a 20 percent duty on the company’s products and its sales were near zero. After NAFTA, sales to Mexico jumped to $30 million a year – corn, tomatoes, peaches, beans, rice, juice, chocolate – though that number has declined during Mexico’s recent economic troubles. About 15 percent of the firm’s total sales are to Mexico and Canada, he said.

Golden, who called Trump’s decision to pull out of the TPP his “biggest mistake,” said he’s “very, very concerned” about what the president might do on NAFTA.

If significant duties and tariffs return, “we’ll lose a great deal of sales,” he said. While Golden doesn’t oppose updating the deal, he said the basic framework for agricultural and food products should stay as is, except for fewer restrictions on dairy products.

The U.S. farm industry, which boasts a $17 billion trade surplus, is hoping it has an ally in new Agriculture Secretary Sonny Perdue, who started an international trade company after serving as Georgia governor. He hasn’t been as vocal as Trump against NAFTA, and reportedly helped persuade the president not to withdraw yet. On Wednesday, Perdue told a congressional committee that stronger exports can help a rural economy that is in “dire straits.”

The California Chamber, which referred me to Golden, who is on the U.S. Department of Commerce exports council for Northern California, also promotes the value and importance of NAFTA.

Mexico is the state’s No. 1 market, accounting for about 16 percent of total exports. Last year, California’s exports to Mexico were about $25.3 billion, with computers and electronics the top categories. In March, exports to Mexico totaled $2.2 billion, up 3.2 percent from March 2016.

Canada is California’s second biggest market, with $16.2 billion in exports in 2016, more than 10 percent of the total. In March, exports to Canada were $1.4 billion, up 1 percent.

Most economists say NAFTA has basically been a wash, creating some winners as well as losers, but is now deeply embedded in the U.S. economy. It has also boosted Mexico’s economy, which then reduced the flow of illegal immigrants seeking work in the U.S. That’s a far more effective and humane way to secure the border than building walls or ramping up deportations.

Trump appeared ready to terminate NAFTA, but after personal appeals from the leaders of Canada and Mexico, he announced last month that he will try first to get a better deal. In a letter to Congress on Thursday, his trade representative triggered 90 days of consultation and set the stage for talks to begin by Aug. 16.

It absolutely makes sense to modernize the deal to cover software, intellectual property and other changes in our economy over the last two decades. But it would be crazy to get into a trade war with our closest neighbors. Already, Trump has slapped higher tariffs on lumber imports from Canada and has criticized its dairy and energy industries. Early on, he floated the idea of a 20 percent tax on Mexican imports to help pay for his border wall.

At the same time, Trump has let China off the hook on currency manipulation, even though he railed against it during the campaign and even though some economists say currencies undervalued against the strong dollar are a major cause of U.S. trade deficits. The 12-nation TPP was designed to counter China’s growing influence in the Asia-Pacific by expanding U.S. trade ties in the region.

Trump’s views on global trade will be highlighted as he attends his first G-7 summit May 26 with the leaders of the world’s other major economic powers.

Many CEOs and thousands of workers in California will be watching closely and keeping their fingers crossed.

Foon Rhee: 916-321-1913, @foonrhee

NAFTA jobs

The 10 states with the most jobs added due to the North American Free Trade Agreement:

State

Jobs

Calif.

575,190

Texas

387,067

New York

318,169

Florida

285,754

Illinois

211,377

Penn.

206,209

Ohio

187,968

Georgia

155,397

N.C.

152,422

Mich.

146,985

Source: U.S. Chamber of Commerce

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