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Withdrawing from NAFTA would be Trump's gravest economic mistake, says Bush 41 trade chief

The North American Free Trade Agreement could use an update, but withdrawing the United States from the 1994 accord could dismantle key supply chains and threaten millions of U.S. jobs, former U.S. Trade Representative Carla Hills said Monday.

"It would be the gravest mistake you could make, economically, for our nation," Hills, who served as trade representative under President George H. W. Bush, told CNBC's "Squawk on the Street."

On Monday, President Donald Trump will meet with Canadian Prime Minister Justin Trudeau. The two will reportedly discuss economic ties, jobs and women in the workforce.

"Canada is our largest export destination, and Mexico is our second largest. And I think the prime minister does not want that to be destroyed," Hills said.

Trump's stated mission for NAFTA is to renegotiate the agreement, and if renegotiation fails, then remove the United States altogether.

But the trade relationship between the United States, Mexico and Canada is highly interdependent, and withdrawing from it could stifle competition and hit nearly 5 million U.S. workers whose jobs rely on NAFTA, Hills said.

"There are a lot of things we could do to make ourselves more competitive, but let's not tear down the structure that has given so much to each of us," Hills contended.

"What [Trump] ought to do is use it as a useful foundation and build upon it with the changes that have occurred in the last 23 years" like the emergence of smartphones, she said.

Hills, who also served as secretary of Housing and Urban Development under President Gerald Ford, argued that disrupting the supply chains that exist across the North American continent will hinder the United States' competitiveness in global trade.

"Our most efficient supply chains are in North America," Hills said. "You ask the state of Washington, 'What do you import?' And they say airplane parts. 'What do you export?' Airplanes."

"If we were to cut off our supply chains for imports, we would be far less competitive in terms of our exports," she said.

Neither Robert Lighthizer, known China hawk and Trump's pick to be his U.S. trade representative, nor Wilbur Ross, the billionaire Trump tapped to be secretary of Commerce, have been confirmed.

If approved, the two are expected to spearhead negotiations for "free and fair" deals with the United States' trading partners.