Here Is What CRE Execs Need To Know About Trump's Plans For NAFTA
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Within his first week as the 45th president of the United States, Donald Trump has signed an executive order calling for the renegotiation of the controversial North American Free Trade Agreement — which he calls the "worst trade deal in history." This will impact the flow of goods between the U.S., Mexico and Canada. The president said American jobs were lost through the trade agreement and he is pushing to bring them back, as he promised on the campaign trail. Below are several facts about Trump's trade goals to note.
1. A Little History
NAFTA was negotiated in 1987 by Ronald Regan, though it wasn't until Bill Clinton took office that the agreement was signed into law in 1994, CNN reports. The goal was to create a trilateral deal between the three nations that would cut through the bureaucratic red tape and allow for the import and export of goods minus high taxes and tariffs. In addition, it aimed to boost each nation's competitiveness in the global marketplace — and it's safe to say this goal has been met, as NAFTA is the largest free trade agreement in the world.
2. Labor Implications
President Trump's claim that the NAFTA agreement is stealing U.S. jobs is at least partially true. Taking factors like economic growth and inflation into account, the U.S. has lost about 680,000 jobs between 1994 and 2010 to NAFTA, 80% of which were in manufacturing as companies relocated plants to Mexico in favor of the country's cheap labor costs. On the other hand, Mexico and Canada are the U.S.'s largest export markets, with more than 6 million American jobs relying on trade with Mexico alone. In addition, more than 60% of NAFTA imports are used to manufature Made-In-America products by American businesses, according to the Office of the U.S. Trade Representative.
3. A Trade War
Trump has mentioned imposing a 35% tariff on Mexico and getting the country to waive its value-add tax on U.S. companies. Should Mexico not respond in kind, Trump has threatened to pull America out of the deal — something he has the freedom to do as long as he gives the other two countries six months' notice, CNN reports. This could result in a trade war as Mexico will likely counter by raising its own tariffs, essentially hurting sales of U.S. products across the border. Mexico grabbed $214B in manufactured goods from the U.S. last year, mostly machinery, vehicles and plastics.
4. Commercial Real Estate Impact
The U.S. hasn't pulled out of a trade agreement since the 1860s, and should Trump negotiate a deal pleasing to all parties involved, the country won't have to. RBM LLP real estate attorney and international real estate lawyer at O&O Realty Holding, Ed Mermelstein told Bisnow the deal is in need of renegotiation, as Canada and Mexico have benefited more from NAFTA than the U.S.
"There is a disparity in the economies, especially Mexico. Ultimately the idea would be if we expanded their economies that it would benefit the U.S., but ... [the deal] has been very one-sided for years," Mermelstein said. "NAFTA renegotiation will benefit the commercial real estate industry because real estate tends to do best during a strong economy."