Baker Institute experts: NAFTA does not matter as much as people think

EXPERT ALERT

David Ruth
713-348-6327
david@rice.edu

Jeff Falk
713-348-6775
jfalk@rice.edu

Baker Institute experts: NAFTA does not matter as much as people think

HOUSTON – (June 20, 2017) – In 1993, the United States ran a small trade surplus with Mexico; today the country’s second-largest trade deficit is with Mexico. U.S.-Mexico trade — exports plus imports — has grown 3 1/2 times faster than the U.S. gross domestic product since the North American Free Trade Agreement (NAFTA) began in 1994.

Credit: Shutterstock.com/Rice University

“If NAFTA were solely responsible for all the trade growth and the deficit — as the political jousting on trade implies — renegotiating or withdrawing from it could have major consequences, good or bad,” said Russell Green, the Will Clayton Fellow in International Economics at Rice University’s Baker Institute for Public Policy and a former U.S. Treasury Department official. “Those assumptions are certainly overblown and possibly downright wrong.”

Various problems with thinking NAFTA has mattered or can matter very much are outlined in a new issue brief, “NAFTA Does Not Matter as Much as You Think (But Renegotiation Matters a Lot),” by Green and co-author Tony Payan, the Françoise and Edward Djerejian Fellow for Mexico Studies and director of the institute’s Mexico Center.

Green, who published an op-ed expanding on the brief’s analysis in The Hill, and Payan are available to discuss NAFTA developments with the media.

“That is not to deny that changes to NAFTA could impact segments of specific industries — mostly in agriculture, electronics and autos — or certain localities like Texas,” Green said. “Nonetheless, every study in the review … found that NAFTA benefited the U.S. more than Mexico. It may not be worth as much as we think, but it is worth something.”

“It appears that renegotiation matters most for its potential impact on Mexico’s political dynamics,” Payan said. “U.S.-Mexico trade matters more for Mexico than for the U.S. As a hot-button political issue, NAFTA will have a greater effect on Mexico’s presidential elections in 2018 than it did in the U.S. elections in 2016.”

Renegotiating NAFTA in the second half of 2017 and first half of 2018 carries enormous political risks for Mexico, Payan said. “The ruling PRI party could pursue tough negotiating tactics to win electoral points,” he said. “Alternatively, it could aim for fast renegotiation, making important concessions, hoping the issue fades quickly. Both risk a party change in the upcoming elections. If that happens, trade may not be the only Mexican policy that NAFTA winds up changing.”

Green’s recent review of trade research pegs roughly 25 percent of current trade to NAFTA tariff reductions. Neither renegotiating nor canceling the treaty holds much potential for changing the U.S. economic trajectory, he said.

For more information or to interview Green or Payan, contact Jeff Falk, associate director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775.

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Follow Green via Twitter @RGecon.

Follow Payan via Twitter @PayanTony.

Follow the Baker Institute via Twitter @BakerInstitute.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Related materials:

Issue brief: www.bakerinstitute.org/research/nafta-does-not-matter-as-much-as-you-think.

Green biography: www.bakerinstitute.org/experts/russell-green.

Payan biography: www.bakerinstitute.org/experts/tony-payan.

Founded in 1993, Rice University’s Baker Institute ranks among the top five university-affiliated think tanks in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blogs.chron.com/bakerblog.

About Jeff Falk

Jeff Falk is associate director of national media relations in Rice University's Office of Public Affairs.