Washington DC – Withdrawal from the North American Free Trade Agreement (NAFTA) would create a tariff burden of up to $9 billion on US chemical exports.
That stark warning comes in a recent report from the American Chemistry Council, entitled Withdrawal from NAFTA Would Erode US Manufacturing Competitiveness.
The report foresees higher prices for manufacturers and consumers if the US left NAFTA. There is also the likelihood that Canadian and Mexican companies could turn to Chinese suppliers instead.
In contrast, the report claims, if President Trump were to modernise NAFTA, the US chemical industry could capitalise on the strong competitive advantage created by the shale gas boom.
Under a modernised NAFTA, the report predicts US chemical exports to Canada and Mexico could be a third higher by 2025. This would further support the chemical sector’s positive contribution to the US trade balance, said ACC.
ACC’s analysis shows that NAFTA has helped economic growth and job creation in the US. Chemicals exports to its two closest neighbours grew from $13 bn in 1994 to a predicted $44 bn in 2018. They are projected to reach $59 bn by 2025 under NAFTA.
‘President Trump has the opportunity to help American manufacturers achieve enormous growth under a new, stronger and more modern NAFTA,’ said Cal Dooley, president and CEO of ACC.
‘In 2016, the chemical industry saved approximately $700 m in tariff relief on those exports, and $800 m in tariff relief on imports. The savings have helped drive economic growth throughout the manufacturing supply chain and lowered prices for manufacturers and consumers.’
Dooley added that 46,000 chemical industry jobs now depend on trade with Canada and Mexico.
‘Future growth depends on modernising this trade pact,’ he said.
‘NAFTA has given chemical producers confidence to invest by providing certainty that increased volumes of US chemical and plastic products will be tariff-free for our NAFTA partners,’ said Emily Sanchez, director of economics and data analytics at ACC. She is also one of the lead authors of the report.
‘With a long capital cycle, certainty and confidence in future trade relationships are essential to justify future investment,’ she said.
‘NAFTA has protected the US and our investors from extreme tariff uncertainty for more than two decades. Without those protections, tariff rates could rise dramatically, creating a domino effect that puts American businesses, investment, and jobs at risk,’ Sanchez added.
Without NAFTA, chemicals and plastic products from China would be far more affordable, and attractive, to Canadian and Mexican companies. ACC believes the US could forfeit its North American market position to China.
‘Chemistry touches 96% of all manufactured goods, and when the price goes up, customers look for cheaper substitutes,’ Dooley explained. ‘Withdrawing from NAFTA will not strengthen America’s competitive advantage. It might even give trading partners the power to price us out of the market entirely.’