LAREDO, Texas – Three local experts from Texas A&M International University (TAMIU) say that if the North American Free Trade Agreement were to end, the local community would need to adapt and move forward.
“A World Without NAFTA: Economic and Business Perspectives” was a forum coordinated by the Binational Center at TAMIU, and had the participation of three speakers, Stephen Meardon, Director for Center for the Study of the Western Hemispheric Trade; Federico Schaffler, Director for Texas Center for Border Economic and Enterprise Development; and, Michael Gonzalez, Director for Small Business Development Center.
The Trump Administration is hoping to make a decision regarding NAFTA in about 90 days, so TAMIU’s Binational Center thought it would be good to listen to some experts and consider all the possibilities, including one without the commercial treaty.
First, Meardon talked about “The Stakes for U.S. Hemispheric, and World Economies.” He said local communities should talk about a world without NAFTA because President Trump is telling the nation to do so.
“He has concrete ideas: get rid of NAFTA or renegotiate,” Meardon said, but also asked the audience to think about what happened to the TPP.
According to Meardon there will be some changes in the U.S. policy, but most likely “we won’t leave NAFTA.” He explained that according to the Texas Act 1974 Section 125 the agreement can be terminated, but it needs to follow certain rules.
“Most people believe the President doesn’t have the power to withdrawal from NAFTA,” he said. But he does.
He added that it is useful to think of a World Without NAFTA to be able to analyze what can happen to trade, goods, imports and exports.
The common assessment is that nothing would happen. But, he explained that “if NAFTA is canceled, México will have an opportunity to have more treaties with other countries, it will have a dynamic effect.”
“When you take in trade, the first kind of model shows how two countries open to trade in a static model. Now we need to think about building capital status,” Meardon said.
According to the Executive Office of the (U.S.) President, the idea is to have some warranty – thru the America First Trade Policy – that “it is more desirable for companies to stay here, create jobs here, pay taxes here, and rebuild our economy.”
Meardon showed some graphics depicting the price the U.S. and México would pay if NAFTA was broken. In general, according to those graphics, sometimes the price paid has been the replacement of people with machines, and a lowering in income for employees.
“If you divide the before and after NAFTA, you will see a spread of positive changes, a division by roots, but an inequality in México,” he added.
As a conclusion on his presentation, Meardon said:
“Economists’ models estimate modest U.S. and Mexican benefits from NAFTA – implying modest effects of U.S. withdrawal,” he said. “If the trade deficit is the concern, withdrawal or renegotiation of NAFTA is barking up the wrong tree. If U.S. inequality is the concern, still barking up the wrong tree. If Mexican inequality, then give Mexico more U.S. trade.”
The second presentation was by Schaffler, who offered the topic, “International Trade Impacts Beyond Custom Brokers & Logistics Operators.”
As a science fiction novel author, Schaffler asked the audience to imagine a (very unlikely) future without NAFTA.
“The possible scenarios are, a complete disappearance of NAFTA, its total renegotiation or a partial renegotiation,” he said.
He explained how all U.S. states do business with Mexico, in one way or the other, but since the decision makers most probably haven’t come to the border, “they believe in myths, like the ones that say the border is unsafe, dangerous, and where crime is rampant.”
But Schaffler showed through a statistic how, according to the 2016 FBI Uniform Crime Report, Laredo or the Rio Grande Valley does not have as much crime per a 100,000 people, as New York, Detroit or Houston, just to mention some. And, he added that Laredo is the third busiest Custom District in the U.S., just after Los Angeles and New York.
“We are more efficient and productive, and the Texas ports do have an impact,” Schaffler said. “That way, when NAFTA is renegotiated, we need to consider these numbers, the daily trade.”
The importance of the land port in the South Texas border can also be explained throught to all the movement generated on a daily basis, with 61 percent in machinery and transport equipment, 12 percent in manufactured goods, nine percent in miscellaneous manufactured articles, eight percent in chemicals and related products, and ten percent in everything else.
Schaffler also went deeper when he explained how the custom brokers and logistics operators are engaged with other daily activities, and how many of the 880 custom brokers in Mexico have a license or some representation to operate in Nuevo Laredo (around 440), and of those, some 350 have offices, warehouses or operation in Laredo.
“At the end, if NAFTA is renegotiated, we shouldn’t panic that much, the trade will continue to flow even if the movement is slower,” he added. “What can we expect? We can expect jobs, and a diversification of our economy. We can expect things to even be better for us.”
Schaffler considered that the U.S. have strong roots, and Laredo has been able to survive devaluations, health crisis, and that the same will happen if something happens to NAFTA.
“Is not rhetoric or goodwill words. We can expect los Dos Laredos to adapt and succeed, because that has happened before,” he concluded.
The last presentation was given by Gonzalez and it was titled “Risks for South Texas Small Business.”
He explained how in Laredo many of the businesses are small.
“Small businesses create new jobs. They represent 90 percent of all firms in Texas. That’s over three millions workers statewide,” Gonzalez showed.
In Laredo, the largest employers and industries in the area are: Private Sector: Transportation, Retail, Hospitality/Tourism; and, in the Public Sector: Government, School Districts, Border Patrol, and Customs.
On the question of how these industries could be affected by the changes, Gonzalez considered that it could have an impact in prices and tourism. But he said is important to analyze all the NAFTA re-negotiation factors.
“Factor making U.S. spending by Mexican nationals prohibitive or increasing prices for all consumers; did we learn from the peso devaluation in ’88, or ‘95? What have we learned since the start of NAFTA? Have we diversified enough?” he asked.
Gonzalez shared the same feeling as the other speakers. In case something changes with regard NAFTA, people will need to adapt.
“If there’s an extreme case where NAFTA goes away, trade will continue, we will diversify and look into other alternatives,” Gonzalez added. “Maybe we will need some retraining and modification in the way we do things, but we will adapt.”
During a Q&A session, the main focus was the need to tell President Trump and leaders that NAFTA is not only about the border, is about how trade works, and the importance to make them understand of the benefits in general the trade brings to both nations.