President Trump often cited withdrawing from the North American Free Trade Agreement as a way to reduce America’s trade deficit with Mexico. However, a Forbes Dot Com article says that isn’t the way it works. If the U.S. should no longer be involved in NAFTA, all three countries revert to Most Favored Nation trade status under the World Trade Organization. In order to join the WTO, each country had to agree to limit its tariffs to a certain level.
The average U.S. tariff on imports from non-FTA countries is 2.8 percent. The World Bank says Mexico’s average tariff is 4.5 percent. If freed from NAFTA, the president could increase tariffs on Mexican imports to help reduce the imbalance. However, WTO rules require the U.S. to also raise tariffs by an equal amount to all of its other partners that don’t have a free trade agreement with America. Most economists say there is no scenario under which withdrawing from NAFTA will be a good thing for America.
Should the U.S. follow through on the withdrawal threat, Mexico and Canada would look elsewhere for free trade agreements. Canada has a new free trade agreement with the European Union, while Mexico and the EU are currently negotiating a free trade agreement of their own.