When President Trump announced that he intended to levy a 25 percent tariff on imported steel, and a 10 percent tariff on imported aluminum, U.S. trade partners were surprised — and angry.
His actions came after a U.S. Commerce Department report found that the unfair “dumping” of steel and aluminum (exporting these products to the United States at below domestic market value) by other countries was leading to plant closings and job losses. This has been deemed by the Trump administration a threat not only to domestic manufacturing, but also to national security.
At first stating that there would be no exceptions to the tariffs, Trump stepped back from that position by the time of his formal declaration. He exempted Canada (the largest exporter of steel and aluminum to the United States) and Mexico from the tariffs, at least temporarily.
For the many integrated industries in the Midwest that rely on cross-border trade, such as the auto sector, this exemption was particularly important.
Negotiators from Canada, Mexico and the United States have begun their seventh round of discussions for a new, or modernized, North American Free Trade Agreement. And while the dissolution of NAFTA seemed very likely several months ago, negotiations are still alive.
The E-Verify program allows employers to check whether newly hired workers have authorization to work in the United States. Undocumented immigrants are not eligible to work, nor are many people in the country here on short-term visas. Created in 1996 through federal legislation, E-Verify is an internet-based system that uses data from the Social Security Administration and Department of Homeland Security; verification can be instant, and rarely takes more than 24 hours. Individuals who receive “tentative non-confirmations” can challenge the finding.
There is no federal requirement for employers to use E-Verify (they do have to collect and verify I-9 forms), and one criticism is that people with fraudulent documents get through the system. The federal government does very few audits, so there is little enforcement of verification requirements. Still, a number of states have requirements of some kind for employers to use E-Verify (even minus such a state law, some employers use the system; see map).
What’s at stake for the Midwest’s food and agriculture sectors when it comes to the future of the North American Free Trade Agreement? A whole lot of jobs and economic activity, according to a letter signed in November by nearly 170 agriculture organizations and companies and sent to all 50 U.S. governors.
“Withdrawal from the accord would have adverse impacts,” the letter states before detailing why, as well as the economic consequences in various sectors.
For instance, Canada and Mexico account for 40 percent of the volume of U.S. pork exports (seven of the 10 leading states for pork production are in the Midwest) and 27 percent of U.S. beef exports (five of the 10 states with the most cattle are in the Midwest).
When the North American Free Trade Agreement took effect in 1994, it created the largest free trade area in the world at that time. By increasing trade and investment, reducing tariffs and addressing non-tariff barriers, the leaders of Canada, Mexico and the United States hoped to grow their countries’ economies and raise living standards across the continent.
“NAFTA worked, fundamentally shaping North American economic relations, driving integration between Canada and the United States’ developed economies and Mexico’s developing economy,” says Colin Robertson, vice president of the Canadian Global Affairs Institute and a former Canadian diplomat.
More trade with neighbors
In many measurable ways, NAFTA has been a major success. U.S. trade with its two neighbors has grown at a faster rate than its economic activity with the rest of the world. The value of U.S. exports to Mexico reached $231 billion last year, with Michigan ranking third among all U.S. states ($12 billion), and for the Midwest, the cross-border relationship with Canada is especially valuable. Canada serves as the largest export market for nine of the 11 states in this region (Kansas and Nebraska are the lone exceptions).
In states such as Michigan and Ohio, much of this cross-border trade centers on the automotive industry, where cars and their various parts are built via supply chains that send components across the border multiple times on their way to completion.
In fact, intermediate goods (not-yet-completed products) from Canada and Mexico accounted for half of all total imports from these countries. Free trade is essential to preserving these cross-border supply chains. According to the Canadian Embassy, trade with Canada supports close to 9 million jobs in the United States. The Mexico Institute estimates that nearly 5 million jobs in the U.S. depend on trade with Mexico.
But from the start, the three-nation agreement has failed to fully recognize how changes in North American trade would negatively affect certain workers and industries, says Christopher Wilson, deputy director of the Mexico Institute.
As some leading lawmakers in Washington, D.C., explore potential changes to the federal tax code, one idea in particular — the creation of a border adjustment tax — is likely to get more and more attention from many Midwest-based firms.
Within a month of President Donald Trump’s taking office, he and Canadian Prime Minister Justin Trudeau met for a White House visit in which they jointly agreed to strengthen cooperation on a range of issues, from regulatory reform and cooperation, to border efficiency and security.
“It was important for building a foundation,” Stephen Brereton, Canada’s consul general in Chicago, says of this early meeting of the two federal leaders, “and the government ministers will move much of this forward.”
In part, the February summit between Trudeau and Trump simply reaffirmed a commitment to some ongoing initiatives between Canada and the United States — for example, giving preclearance to cross the border for people who meet certain requirements and better integrating cross-border law enforcement.
Michigan lawmakers are looking for ways to improve the availability, reliability and affordability of electricity in the state’s Upper Peninsula, and one potential solution is to bring in more power from neighboring Ontario.
In a letter this fall, the province backed Michigan’s request for the Midcontinent Independent System Operator to study the idea of extending electric-generating connections across the U.S.-Canada border.
“Interconnections with neighboring jurisdictions provide significant economic and reliability benefits on a daily basis,” wrote Glenn Thibeault, Ontario’s minister of energy, adding that these connections can help provide backup when areas lose their primary generating source.