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Why Renegotiating NAFTA Could Disrupt Supply Chains

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Why Renegotiating NAFTA Could Disrupt Supply Chains

Federal Reserve Bank of New York,

5 min read
5 take-aways
Audio & text

What's inside?

Renegotiating NAFTA could imperil global supply chains and raise consumer prices.

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Editorial Rating

8

Qualities

  • Analytical
  • Overview

Recommendation

Opponents of the North American Free Trade Agreement (NAFTA) decry the high trade deficit the United States has with Mexico, arguing for stricter “rules of origin” that would limit firms’ access to zero tariff rates under the accord. But as economists Mary Amiti, Caroline Freund and Tyler Bodine-Smith explain, more stringent rules could lessen bilateral trade, hurt global supply chains and raise prices for consumers. getAbstract recommends this timely, informed study – accessible to both the economist and lay reader – for its dissection of a geopolitically relevant topic.

Summary

The North American Free Trade Agreement (NAFTA) facilitates commerce among the United States, Mexico and Canada through the removal of tariffs. Zero tariff rates reduce the costs of intermediate production parts to American manufacturing firms, resulting in lower US consumer and export prices and making American business more competitive. NAFTA countries adhere to product “rules of origin,” which define the eligibility for NAFTA’s zero tariffs. These rules are complicated, established per product, and involve detailed and time-consuming documentation...

About the Authors

Mary Amiti and Tyler Bodine-Smith are economists at the Federal Reserve Bank of New York. Caroline Freund is an economist with the Peterson Institute for International Economics.

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