President Trump, who built his Pennsylvania campaign on the “downsides” of international trade, has fulfilled his promise to revise the 25-year-old free trade agreement between the United States, Mexico and Canada. Now the battleground has moved to the U.S. Congress, and many hope for a speedy approval of the deal to provide certainty for the country’s businesses and workers including those in Pennsylvania.
Over the years, trade has been wrongly blamed for most of America’s economic woes and not given credit for improving America’s economic fortunes. Automation, shifts in consumer and market demand, and other factors shuttered factories as much as, if not more than, trade. In fact, trade agreements have opened new and growing markets around the world to American manufacturers, farmers and ranchers, and service companies.
One in five jobs in Pennsylvania relies on international trade, according to the Business Roundtable. Foreign direct investment in the form of new manufacturing facilities and service operations employ almost 300,800 people in Pennsylvania.
The North American Free Trade Agreement, far from being the “great sucking sound” H. Ross Perot warned would ruin the U.S. economy in the 1992 presidential campaign, actually helped Pennsylvania weather a rapidly changing international marketplace and strengthened U.S. competitiveness, also according to the Business Roundtable.
Now that President Trump has followed through on his promise to address imbalances and modernize it, the renamed U.S. Mexico Canada Agreement, or USMCA, will deliver even more benefits to Pennsylvania.
Studies have tried to quantify the economic impacts of NAFTA withdrawal on the U.S. economy. According to Matthew Slaughter, a former economic adviser to President George W. Bush, it could cost the U.S. economy $50 billion a year if we withdraw from NAFTA. Looking at the state level, termination could jeopardize between 71,300 to 142,000 jobs in Pennsylvania, according to a study by Trade Partnership Worldwide, a consulting firm. Other studies peg this number higher.
That would be the opposite of what President Trump aims to accomplish for the state. Instead, it is time to get behind the USMCA to build on and strengthen the Pennsylvania economy.
In 2017, Pennsylvania’s top five export products including machinery, chemicals, computer and electronic parts to Canada and Mexico totaled $14.4 billion. The state’s exports of motor vehicle parts and electrical equipment to Canada and Mexico have doubled over the last 10 years.
Agricultural has long been a contentious issue with NAFTA countries. The data shows the importance of agriculture trade with Canada and Mexico. 54 percent of the state’s total agricultural exports, or $1.2 billion worth of products, went to Canada and Mexico in 2018, supporting 8,720 jobs. The Pennsylvania Farm Bureau, which stressed the importance of more a balanced approach to trade in dairy and poultry products, endorsed the USMCA when negotiations were completed last fall, concluding it will provide new market access but keep “the zero-tariff platform in place on all other agricultural products.” Canada’s milk pricing program will be eliminated so Pennsylvania’s dairy farmers will gain more export opportunities.
The energy sector provides an especially strong illustration of the myths and facts of trade. Trade did not cause the decline in the state’s important coal industry but it is proving pivotal in creating new jobs in the emerging natural gas sector. Pennsylvania makes up an estimated 19 percent of U.S. natural gas production and fully three-quarters of the production from the massive Marcellus Shale formation. This has given rise to impressive growth in natural gas exports all over the world. In the last 10 years, Mexico has doubled its purchase of U.S. natural gas.
The USMCA also includes specialized provisions, such as one advocated by Congressman Mike Kelly that will allow home shopping programming services to distribute into Canada. This will mean Pennsylvania companies will have more access to Canada’s retail consumer market.
For many Pennsylvanians, Billy Joel’s 1982 hit “Allentown” captured the commonwealth’s battered economy and sense of abandonment by those in power. But that song came out a full 10 years before NAFTA was even negotiated. If anything, NAFTA set the stage for Pennsylvania’s ability to regain its footing in a rapidly changing world.
The USMCA does not repudiate the gains of NAFTA but instead aims to build on them, leveling the playing field, correcting imbalances, and bringing new opportunities to people in all three countries, specifically in Pennsylvania. The state’s lawmakers need to prioritize ratifying the deal this year.
Pınar Cebi Wilber, is the chief economist for the American Council for Capital Formation, a pro-business think tank based in Washington, D.C.