EXPERTS ADVISORY

President Trump signed an executive order today formally withdrawing from the Trans-Pacific Partnership. He’s also expected to renegotiate the North American Free Trade Agreement. He has said he plans to add tariffs to products made in other countries and imported to the United States, especially those from Mexico and China. University of Michigan experts can discuss this and other policies.

Hoyt Bleakley is an associate professor of economics and research associate professor at the Population Studies Center. He studies economic history, development, labor economics and international macroeconomics.

“People often think of international trade as a zero-sum game. To be sure, there is competition, but this obscures many of the benefits that arise on both sides,” he said. “But even if you have a ‘zero sum’ view, you have to consider whether it’s countries or perhaps regions that compete with each other.

“Over the past two decades, we have integrated Mexico into the North American supply chain. This allows many ‘made in USA’ products that use large amounts of U.S. land, labor and machines to be more competitive on the world market. Those products compete with their counterparts produced in an Asian supply chain, which integrates labor from high-and low-wage countries to be competitive as well.

“People tend to focus on the factories that have closed, as well they should. But doing so ignores the production that remains here—and the new ones that are created—that might not have been possible at all if tariffs were so high that we couldn’t make use of the comparative advantages throughout the North American region.”

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Donald Grimes, senior research associate at the Institute for Research on Labor, Employment and the Economy, conducts annual economic forecasts for Oakland, Washtenaw and Wayne counties in Michigan. Detroit is in Wayne County.

“The big losers over the past decade were the Canadians,” he said. “Their dollar was strong until recently. Their auto industry was heavily unionized, so they are probably very interested in revising NAFTA. The U.S. auto industry was not hurt by NAFTA. All it did was eliminate a 3-to-4 percent tariff on autos and parts. The plants moved to Mexico because it has become a more developed economy.

“Industry will make some concessions to Trump in exchange for reduced regulation, lower taxes and especially in return for a delay in mileage requirements. But looking out 10 or 20 years, auto production will have continued to shift to Mexico.”

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Alan Deardorff, professor of public policy and economics, is an expert on international trade. He developed the Michigan Model of World Production and Trade, which is used to estimate the effects of trade agreements.

“Trump’s intent to renegotiate NAFTA could be very harmful if it restores the tariffs and other barriers to trade between the U.S. and Mexico that existed before the trade agreement,” he said. “That would destroy, but not replace, the complicated North American supply chains that have grown under NAFTA and sustain much of U.S. manufacturing.

“More likely, I hope, is that he will renegotiate NAFTA to update it but not increase trade barriers, and if so, that would not be harmful. As for his desire to impose a large tariff on imports, perhaps only from China, I think it unlikely that he’ll be able to do that politically. But if he did, it would be devastatingly costly for U.S. industry by itself and would prompt retaliation by other countries that would raise costs of living everywhere and probably cause a global recession.”

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Linda Lim, professor of strategy, focuses her research on the political economy of multinational and local business in Southeast Asia. That includes the changing international trade and investment environment, and the influence of domestic politics, economic policy and culture on business structure, strategy and operations.

“Trump’s recent comments suggest that he is indeed committed to unilateralism in international relations in general, and trade policy in particular,” she said. “This is a major reversal of the multilateral world order which has (broadly speaking) kept peace and generated prosperity for seven decades.

“It is difficult to see how the United States, now a much smaller share of the world economy and more dependent on the rest of the world than before, can ‘go its own way’ as Trump signals he intends, without undermining the stability and prosperity of other countries and thus, eventually, its own.”

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Marina Whitman, professor of business administration and public policy, is an expert on international trade and a former chief economist and first female group vice president at General Motors Corp.

“Yes, NAFTA could use updating and China has quite a few trade behaviors we can take them to task for, though deliberately weakening their currency is not currently one of them,” she said. “But what he is proposing is both more drastic and more irrational. It would have a negative effect on both the U.S. economy and those of our trading partners, especially China, Mexico and Canada as well, indeed, on the global economy.”

Contact: 734-763-4173, [email protected]

Puneet Manchanda, professor of marketing, is an expert on business in emerging markets, business in India, and strategy and marketing issues.

“If the Trump administration follows through on all its campaign promises vis-a-vis trade agreements and policies, the short-term effect on the American consumer is unlikely to be positive,” he said. “The cost of goods and services is likely to go up while the impact on job creation is unlikely to materialize right away.”

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