Nafta Protectionism

After the trump administration came to power, the government has shifted towards more protectionist policies, such as Trump renegotiating the boundaries of NAFTA. Protectionism refers to the economic policies imposed by governments to restrict trade across countries to achieve a macroeconomic goal and are enforced through a variety of strategies, the most common of which is tariffs on imports. Protectionism comes with the advantage of protecting domestic industries from foreign ones and helps strengthen the industry and create jobs. On the other hand, increased protectionism in the long term weakens industry as there is no need to innovate on the part of firms and worsens its international competitiveness. Many on either spectrum of the discussion

One form of protectionist policies that would occur would be to impose increasing red tape on the movement of labor by requiring firms to fill out time-consuming forms to discourage firms from offshoring production under NAFTA. Additionally, the rates of tariffs on imports from practically 0% to an average 4.2% and 7.1% with Canada and Mexico respectively under World Trade Organization legislation. To competently assess protectionism as a whole it is important to review the projected positives of the U.S leaving NAFTA. The most significant of which is of protecting U.S manufacturing industry. According to NAFTA guidelines, labor movement has too many incentives for job offshoring (Graceffo). As a result, a projected net of 1 million dollars U.S jobs have been lost since the ratification of NAFTA (Wallach). If the U.S were to increase protectionist policies by leaving NAFTA, employment in the manufacturing sector of the economy would improve. Also, the real GDP of the U.S Would expand, because under NAFTA style trading, workers without a college degree on average lost 12.2 percent of their income. Workers would have more money to spend on consumer goods which would increase Aggregate Demand for U.S

To contextualize the situation, one method in which the U.S has been enforcing protectionism is of devaluing the U.S dollar. According to CNN money, trump's statements that the value of the dollar had been too strong and that relative to other countries U.S business would suffer the value of the dollar had dropped by 0.7%. By devaluing the dollar, imports are relatively more expensive and assuming the price elasticity of demand is elastic; domestic consumers will buy more local products. Additionally, The trump administration has campaigned to increase tariffs to up to 45% of Chinese imports. Currently, the percentage of U.S. imports subject to tariffs may rise from 3.8% to 7.4% (Hsu). Consequently, one significant ramification of imposing protectionism towards China is of antagonizing the government into a trade war. Since the U.S accounts for 20% of China's export market protectionism will halter china's economic growth faster than would be predicted and would contract the real GDP (Hsu). Consequently, China would impose higher tariffs and quotas on American goods and overall restrict direct foreign investment from American firms (Hsu). Ultimately the sector of the economy that would lose the most is domestic consumers as consumers will at the same time have to take experience higher prices