Four unintended (and dangerous) consequences of Trump's plan to kill NAFTA

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President Donald Trump's promise to renegotiate NAFTA and have Mexico pay for a wall along the U.S. southern border have become central issues in the agenda of the new administration. They rest on two main assumptions: that NAFTA has disproportionately benefited Mexico at the expense of the US, and that unauthorized Mexicans cross the border in alarming numbers to carry out criminal acts. As President Trump has tweeted, "Mexico is killing us at the border and killing us on jobs and trade."

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Based on this view, one would assume that Mexico has done demonstrably better than the U.S. since NAFTA and that unauthorized migration from that country is at an all-time high. Instead, Mexico's performance during NAFTA has been lackluster. After NAFTA came into effect in 1994, entire Mexican industries—such as furniture, toys, and corn, the source of the ubiquitous tortilla—disappeared almost overnight because local companies could not compete with foreign multinationals.

Foreign companies producing in that country did not have to buy Mexican inputs, so many businesses—like the maquiladoras in the textile and electronics industries—imported raw materials duty free and exported them again, generating few linkages with Mexican supply chains. Without the subsidies that American farmers are used to—$20 billion dollars per year—Mexican agriculture took a beating as well. Although exports of Mexican avocados and tomatoes have increased as result of NAFTA, 2 million agricultural jobs have disappeared.

Although Mexico's foreign trade increased dramatically since 1994, it averaged a fairly mediocre per capita growth rate of 1 percent, compared to 1.5 percent in the US and Canada. Not surprisingly, 8 years after 1994, only 30 percent of Mexicans thought their country had been a winner of NAFTA, compared to 38 percent in Canada, and 48 percent in the United States. A 2013 poll suggests 50 percent of Mexican respondents believe NAFTA has benefited the U.S. most, and 47 percent believe that Mexico fared the worst.

Rather than igniting a trade war that would hurt both countries, the Trump administration should realize what a world without NAFTA would look like. In particular, there are four direct consequences it would have to expect:

1) Increased migration from south of the border

Mexico's growth during NAFTA, although mediocre compared to expectations and other Latin American countries, has been enough to reduce net migration to zero. In fact, recent studies suggest net migration has turned negative, with more people crossing from the U.S. into Mexico every year. The total undocumented population from Mexico has also declined as a result, and the number of arrests of Mexicans at the border are at their lowest level since the 1970s. This major shift in migration trends is attributed to economic stability over the last quarter century. Paradoxically, policies that hurt Mexico's economy would increase unauthorized migration into the US—with or without a wall.

2) Higher prices, fewer goods for Americans

While adopting trade barriers such as ending NAFTA might serve as a temporary protection for the 12.3 million American jobs in manufacturing—about 9 percent of the labor force—this would also result in higher prices and restricted options for all Americans. Companies outsource parts of their supply chain because of lower production costs abroad.

If that option is discouraged through higher tariffs and tax penalties, consumer prices are bound to increase as well. Not only would the price of SUVs or TVs increase, for example, but higher prices could also lead to increased interest rates as a response to inflation. This in turn would result in more expensive credit to buy those SUVs or TVs. Either way, manufacturing employment is likely to continue to shrink because of automation, with or without NAFTA.

3) Allowing China to swoop in

If the U.S. voluntarily retreats from the economic world stage, other countries will not miss the opportunity to fill the vacuum left behind. Shortly after Donald Trump's election, China's president Xi Jinping completed his third trip to Latin America since 2013 to close several trade deals. As the US promises to erect trade barriers, China aims to double trade with the region to $500 billion and investment to $250 billion within 10 years.

China has signed FTAs with Peru, Chile and Costa Rica, and is in negotiations with Colombia, Uruguay and potentially all of the Mercosur trading bloc—which includes Argentina, Brazil, and Paraguay, in addition to Uruguay. Mexico, as with other countries in the region, is considering joining the RCEP—a free trade agreement comparable to the Trans-Pacific Partnership killed by President Trump, but spearheaded by China. This retreat helps China project soft power and influence in the region.

4) Promoting anti-American leaders in Mexico

Contrary to the historical norm, Mexico's ruling elite during NAFTA has been decidedly pro-U.S. If the Trump Administration believes the most pro-U.S. period in Mexico's history to be a bad deal for the United States, it should consider the alternative. The strain in relations with Mexico will set the stage for the rise of decidedly anti-American candidates to power.

Polls now show only 19 percent of Mexicans have a favorable view of the Trump administration, compared to 85 percent for the previous administration. Whereas only 38 percent of Mexicans expressed feeling mistrust toward the U.S. in 2015, 57 percent do today. Without a doubt, the issue will dominate the campaigns for Mexico's 2018 presidential election and anti-American candidates will get a tremendous boost.

If elected, such candidates could undo the cooperation regarding terrorism, public safety, and migration that has characterized the last quarter century. Examples include deporting more Central American migrants than the United States, regularly extraditing drug lords and other criminals, and sharing intelligence with the US government.

The Trump administration should be clear-eyed about these consequences of a wholesale re-evaluation of NAFTA. The United States faces enough challenges dealing with unfriendly countries and real enemies. There is no need to lose the cooperation of a reliable ally next door.

Commentary by Gustavo A. Flores-Macías, associate professor of government at Cornell University. He is the author of After Neoliberalism? The Left and Economic Reforms in Latin America. Follow him on Twitter @Gustavo_F_M.

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