A study prepared for Business Roundtable by Trade Partnership Worldwide, LLC estimates the full impacts across U.S. and international economies of a termination of the North American Free Trade Agreement (NAFTA). “Terminating NAFTA: The National and State-by-State Impacts on Jobs, Exports and Output” found that ending NAFTA would re-impose high tariff costs on U.S. exports and imports, which would reduce the competitiveness of U.S. businesses both domestically and abroad, lower U.S. output and hit U.S. jobs. Specifically, the study found that re-imposing tariff barriers currently eliminated by NAFTA¹ would immediately result in the following losses in the first year:
- Cut U.S. employment by a net² 1.8 million jobs, with two-thirds of the lost jobs held by workers in lower-skilled occupations.
- Reduce U.S. exports to Canada and Mexico by 17.4 percent each.
- Lower U.S. economic output (GDP) by 0.6 percent or $119 billion.
- Reduce U.S. labor income by 0.9 percent.
- Hit U.S. households with lower spending power of $654 per household, as a result of higher inflation and lower wages.
- Have negative output and employment impacts on every U.S. state.
- Benefit several major U.S. trading partners as trade shifts away from the United States, Canada and Mexico to them: China’s GDP would increase by 0.2 percent and employment by over 2 million; Korea’s GDP would increase by 0.4 percent and employment by 146,000; Japan’s GDP would increase by 0.2 percent and employment by 291,400, and Germany’s GDP would increase by 0.2 percent and employment by 123,500.
- The study’s author, Trade Partnership Worldwide, LLC, examined two scenarios. In the first scenario, the United States raises tariffs to most-favored-nation (MFN) rates on imports from Canada and Mexico; Canada and Mexico re-impose MFN duties on imports from the United States; Canada and Mexico trade stays duty-free between them. In the second scenario, the United States raises duties to MFN rates, Canada does the same, Mexico raises duties to bound rates; Canada-Mexico trade remains duty-free. This summary focuses on the results of the first scenario. The impact of the second scenario would be even more negative for the U.S. economy and U.S. jobs.
- The study’s employment impact estimates are net. They take into account increases and decreases in employment as demand increases in some cases for U.S. products and declines in others. These changes arise not only from the direct impacts of the re-imposition of tariffs, but also the indirect impacts of changes in supply and demand for goods and services generally across the economy.