October 3, 2016

HE'S NOT A REPUBLICAN:

Trump's Nafta Mistakes Are Huge (MARY ANASTASIA O'GRADY, Oct. 2, 2016, WSJ)

His attempt to slam Nafta by pointing to a 16% value-added tax that Mexican importers pay, for example, is misleading. This tax applies to transactions on both foreign and domestic-made goods, like the New York sales tax. It doesn't discriminate against imports, and the importer recovers it by charging it to the customer. That's Econ 101.

Nafta disrupted the economic status quo in the U.S.--as it did in Mexico. There have been winners and losers. But the U.S. dislocations are minor compared with those that occur from technological advances or when companies move production from high-tax, union-dominated U.S. states to low-tax, right-to-work states, and especially so when compared with the economic efficiencies gained.

Mr. Trump gave a quick nod to one genuine U.S. disadvantage during the debate when he talked about cutting U.S. corporate tax rates to spur investment at home. But his main message was that under Nafta Mexico is "stealing" U.S. jobs.

In fact, an interconnected North American economy has made U.S. manufacturing globally competitive. U.S. companies source components from Mexico and Canada and add value in innovation, design and marketing. The final outputs are among the most high-quality, low-price products in the world.

U.S. automotive competitiveness is highly dependent on global free trade. According to the Mexico City-based consulting firm De la Calle, Madrazo, Mancera, 37% of the U.S.'s imported auto components came from Mexico and Canada in 2015. This sourcing from abroad is important to good-paying U.S. auto-assembly jobs. But parts also flow the other way. U.S. parts manufacturers sent 61% of their exports to Mexico and Canada in 2015.

This synergy has made the U.S. auto industry attractive for investment.

Posted by at October 3, 2016 1:17 PM

  

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