Donald Trump, job killer
For starters, there is a fundamental mercantilist fallacy in his concern about trade deficits. He seems to think that these deficits are bad because they mean America is buying more from its partners than selling to them. However, the fact of the matter is that surplus dollars in the hands of foreigners ineluctably make their way back to America in the form of investments, stimulating the American economy and jobs.
But the bigger problem with Ross' argument is that he harps on the annual percentage drop in American-made parts in NAFTA imports while disregarding their rise in absolute terms. Thanks to the treaty, trade between the three countries has increased dramatically. For example, American imports from Mexico have increased from $40 billion to about $300 billion a year. So even if the percentage of American parts in these Mexican goods has decreased, in absolute terms it has increased from $10 billion to $46 billion. Ditto for Canada.
And of course, the Trump administration's flawed analysis leads to flawed remedies.
To keep jobs in America, Ross wants to tighten NAFTA's already stringent "rules of origin" requirements on imports. Currently, the treaty stipulates that 62 percent of the parts in imports, especially cars, must come from North America to avoid the 2.5 percent border tax that non-NAFTA countries must pay. This is among the toughest requirements anywhere. But the administration wants to raise that to a whopping 85 percent. On top of that, it wants 50 percent of the content to be not just North American but American.
This is a myopic demand that will backfire badly.
From the standpoint of maximizing economic efficiency, rules of origin are far from ideal because they force companies to source their components not from countries that offer the best prices, but from where they can get preferential tariff treatment. Still, at the time it was written, these requirements were not out of sync with the desire of manufacturers to integrate supply chains across North America and expand their regional manufacturing footprint. These rules offered them an additional incentive to do so and stay in the region. Indeed, post-NAFTA, not only did the Big Three automakers expand their U.S. operations, but Asian auto "transplants" also set up shop in America.
Donald Trump, job killer
For starters, there is a fundamental mercantilist fallacy in his concern about trade deficits. He seems to think that these deficits are bad because they mean America is buying more from its partners than selling to them. However, the fact of the matter is that surplus dollars in the hands of foreigners ineluctably make their way back to America in the form of investments, stimulating the American economy and jobs.
But the bigger problem with Ross' argument is that he harps on the annual percentage drop in American-made parts in NAFTA imports while disregarding their rise in absolute terms. Thanks to the treaty, trade between the three countries has increased dramatically. For example, American imports from Mexico have increased from $40 billion to about $300 billion a year. So even if the percentage of American parts in these Mexican goods has decreased, in absolute terms it has increased from $10 billion to $46 billion. Ditto for Canada.
And of course, the Trump administration's flawed analysis leads to flawed remedies.
To keep jobs in America, Ross wants to tighten NAFTA's already stringent "rules of origin" requirements on imports. Currently, the treaty stipulates that 62 percent of the parts in imports, especially cars, must come from North America to avoid the 2.5 percent border tax that non-NAFTA countries must pay. This is among the toughest requirements anywhere. But the administration wants to raise that to a whopping 85 percent. On top of that, it wants 50 percent of the content to be not just North American but American.
This is a myopic demand that will backfire badly.
From the standpoint of maximizing economic efficiency, rules of origin are far from ideal because they force companies to source their components not from countries that offer the best prices, but from where they can get preferential tariff treatment. Still, at the time it was written, these requirements were not out of sync with the desire of manufacturers to integrate supply chains across North America and expand their regional manufacturing footprint. These rules offered them an additional incentive to do so and stay in the region. Indeed, post-NAFTA, not only did the Big Three automakers expand their U.S. operations, but Asian auto "transplants" also set up shop in America.
Donald Trump, job killer
