Commentary: Scrapping NAFTA Could Have Big Impact on Wisconsin

By Luca Fagundes

The President’s recent decision to impose tariffs on imported steel has sparked criticism from both sides of the aisle. Sen. Pat Toomey (R-Pa.) called the White House’s trade moves “bad news” and predicted imminent retaliation from U.S. allies.

Although the tariffs announced would impose a 10 percent tariff on aluminum imports and a 25 percent tariff on steel imports from the European Union, Canada and Mexico, of special significance is what impact this move will have on the North American Free Trade Agreement (NAFTA).

Since going into effect on Jan. 1, 1994, NAFTA created a tariff-free “highway” between the United States, Mexico and Canada.

The President has criticized NAFTA on all fronts, both during his campaign and since taking office. And the President is not alone in his belief that NAFTA was a “bad deal” for America.

In 2013, well before Donald Trump began his efforts to become a political figure, Jeff Faux, writing for the Economic Policy Institute, identified three distinct negative effects NAFTA had on the United States.

In short, he argued that NAFTA caused a loss of some 700,000 jobs as production moved to Mexico.

Second, he argued that NAFTA strengthened the ability of U.S. employers to force workers to accept lower wages and benefits.

Finally, Faux argued that NAFTA had a destructive effect on the Mexican agricultural sector, which caused an increase in undocumented workers flowing into the U.S. labor market.

The views of this report from 2013 are shared by many, and have been the basis of volumes of economic journals and treatises since NAFTA’s impacts were felt.

However, if no good comes from NAFTA, then why did it come to be in the first place? And what impact would killing NAFTA have on Wisconsin’s economy?

Now, some of you may be thinking that “Faux,” cited above, sounds like a made-up name. In fact, Mr. Faux is very real, as is his Harvard University degree. Given Faux’s apparent level of intellect, it logically follows that he knows the arguments in his report are prima facie flawed, or at least half-truths. But, given my limited intellect, and given the fact that it’s Friday afternoon and I have at least five client files that need my immediate attention, I’ll concentrate on the final argument in Mr. Faux’s report. Because that argument, specifically, is most pertinent to our state.

If NAFTA had a destructive effect on the Mexican agricultural sector, that necessarily must be because the Mexican market was flooded with “agricultural sector stuff” from the other two NAFTA partners. And the U.S. is most responsible for this.

NAFTA’s impact on the growth to the U.S. agricultural industry has been nothing short of mind-boggling. The U.S. Department of Agriculture reports that U.S. agricultural exports from the U.S. to Mexico and Canada has grown by 450 percent since 1994, and Mexico is now the top export destination for a long list of U.S.-grown products, including beef, rice, soybean meal, corn sweeteners and apples.

U.S. food and agricultural industries have flourished under NAFTA, which now supports more than 43 million jobs and economists say has boosted the U.S. economy by $127 billion annually. Wisconsin agriculture is a big economic driver, contributing $88.3 billion annually to our state’s economy, and Mexico is importing the crops grown right here in our state.

And without NAFTA, other exporters will step in to fill the void, should Mexico decide to import from elsewhere. In November 2017, a rare 30,000-ton shipment of Brazilian corn steamed its way to grain terminals in Veracruz, Mexico. Despite a steep decline in U.S. corn prices, with stocks sitting at a historic high, the buyer paid a premium for the Brazilian grain – as much as $2 more per ton, according to trade sources, that also claim recent anti-Mexico sentiments expressed by President Trump may have caused Mexico to look elsewhere for necessary agricultural products, even while paying a slight premium.

And Canada is looking at other options as well. Recent tough rhetoric from President Trump has “convinced Canada that they have a number of trading partners, not just one,” said Ron Bonnett, a beef farmer and president of the Canadian Federation of Agriculture.

What this all means is that a collapse of NAFTA could result in a profound disruption for U.S. farmers who produce grains, meats and dairy products sold to Canada and Mexico.

NAFTA flooded the Mexican market with fungible agricultural goods, produced more cheaply in the U.S. with more advanced farming practices. Economic “supply and demand” followed, and the price of the locally grown items dropped to never-before seen levels. Mexican farmers, who had lived off of the land, selling what the family did not consume, could no longer sustain themselves. Their only option was to go where the jobs were – north.

So Faux was not entirely incorrect, but his argument failed substantially in that it did not explore what a catastrophic impact stepping away from NAFTA would have on agriculture, and on states such as Wisconsin that rely heavily on this industry to remain viable.

Luca Fagundes is an attorney specializing in immigration law in northeast Wisconsin. Attorney Fagundes has represented clients in U.S. Federal District Courts and Federal Immigration Courts in Chicago, Minneapolis and Cleveland. He is a member of the American Immigration Lawyers Association.