Leaving Nafta Would Cost $50 Billion a Year

America’s gross domestic product is now 0.2% to 0.3% larger than it would be without the agreement

By Matthew J. Slaughter. He is dean of the Tuck School of Business at Dartmouth College. Excerpts:

"In a new report canvassing dozens of academic and policy studies, I find that the U.S. gross domestic product is now 0.2% to 0.3% larger than it would be without Nafta, a yearly boost of about $50 billion.

When U.S.-based multinational companies expand in Mexico and Canada, the result is often more jobs and higher wages back home. These “foreign” investments tend to complement, not replace, U.S. operations. A 2014 Peterson Institute study found that a 10% increase in employment at a U.S. multinational’s Mexican affiliate leads to a 1.3% increase in employment, a 1.7% increase in exports, and a 4.1% increase in research spending in the stateside parent company.

Nafta has helped America’s small businesses, too. In 2014, more than 125,000 small businesses exported $136 billion to Canada or Mexico. That is 25% of all U.S. small-business exports. Not only has Nafta increased the size of American workers’ paychecks, it has helped them stretch those paychecks further. American consumers have saved $10.5 billion a year from lower tariffs under Nafta, with most of the benefits going to households with annual incomes below $70,000.

Consider the delicious case of avocados. For 80 years before Nafta, the U.S. banned all imports of Mexican avocados. The ban was initially relaxed under Nafta and lifted altogether in 2007. U.S. avocado imports surged 2,214% from 1992 to 2012. Yet the overall U.S. market was growing so rapidly that U.S. avocado production rose, not fell. In California, the number of avocado orchards increased from 4,801 in 2002 to 5,602 in 2012. Many U.S. producers have established a high-end niche, with U.S. varieties commanding a price premium.

Withdraw from Nafta, and all its gains would be permanently lost. For U.S. companies and their workers, new barriers to trade and investment would limit access to foreign markets, dull additional innovation and investment, and weaken their supply networks. A Business Roundtable study released this month estimates that U.S. GDP would shrink by at least 0.6%—about $120 billion a year—in the initial post-exit years, with U.S. exports down more than 2%. This drop in output and exports would initially destroy more than a million U.S. jobs across all 50 states.

Think that “tougher” domestic-content rules post-Nafta would help American car manufacturers? Think again. Withdrawing from Nafta could cost the automobile industry more than 20,000 jobs—plus nearly 50,000 auto-parts jobs—while adding $330 to $440 to the cost of every new vehicle sold in America. The idea that more domestic content per vehicle means more domestic jobs ignores that uncompetitive companies make fewer cars."