The North American Free Trade Agreement (NAFTA), established in 1994, successfully integrated trade between the US, Canada, and Mexico. In 2020, it was updated to the United States-Mexico-Canada Agreement (USMCA), signaling a shift in trade dynamics. Under the Trump administration, the US threatened to increase tariffs on imports from Canada and Mexico, raising concerns among the three nations.
Cost factors play a crucial role for American businesses and consumers. US carmakers and other manufacturers have invested in Mexico to take advantage of cheaper land, labor, and environmental costs. This vertical cooperation within industrial chains has contributed to the success of the US economy.
The US has benefited from low production costs and tariff-free imports, allowing American investors to reap significant profits. However, imposing tariffs would raise the cost of importing goods from Mexico, potentially reversing these benefits.
In recent years, inflation has posed a critical economic and social challenge for the US, leading to high living costs and increasing societal fragility. Trade friction, geopolitical tensions, and health crises can further disrupt the supply of consumer products and intermediate goods in the US.
Such disruptions may force the Federal Reserve to implement high interest rates to control consumer demand, resulting in price distortions and market instability. Each country—Canada, Mexico, and the US—has its unique strengths and advantages, making it unlikely that the US can easily compensate for increased tariffs with domestic resources.
Even with a willingness to adapt, the US faces challenges such as limited human resources, supporting industries, and high compliance costs, making the transition away from tariff-free imports a lengthy and complex process.
Reference(s):
cgtn.com
