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03-07-2018

American Chemistry Council Warns against U.S. Withdrawal from NAFTA

Proposes Modernization

In a new study from the American Chemistry Council the risks of a U.S. withdrawal from the North American Free Trade Agreement are mentioned. According to the ACC, by modernizing the North American Free Trade Agreement (NAFTA), President Donald Trump can help the U.S. capitalize on the chemical industry’s strong competitive advantage created by domestic shale gas, boost U.S. chemical exports to Canada and Mexico by 34 % by 2025, and support the chemical industry’s positive contribution to the U.S. trade balance.

A U.S. withdrawal from the trade pact would have virtually the opposite effect, creating a tariff burden of up to USD 9 billion on U.S. chemical exports to Canada and Mexico, translating into higher prices for manufacturers and consumers and likely forcing the industry’s two largest trading partners to turn to lower-cost imports from China to satisfy their demand for chemicals and plastics.

In case of a U.S. withdrawal from NAFTA U.S. chemicals exports to NAFTA partners could drop by as much as USD 22 billion, or 45 percent of the current export total (© iStock.com/ictor)

According to ACC analysis , NAFTA has been instrumental to the growth and job creation of the U.S. chemical sector. U.S. chemical exports to Canada and Mexico have grown from USD 13 billion in 1994 to USD 44 billion in 2018. They are projected to reach USD 59 billion by 2025. “President Trump has the opportunity to help American manufacturers achieve enormous growth under a new, stronger and more modern NAFTA,” said Cal Dooley, president and CEO of ACC. “In 2016, the chemical industry saved approximately USD 700 million in tariff relief on those exports, and USD 800 million in tariff relief on imports. The cost savings have helped drive economic growth throughout the manufacturing supply chain and lowered prices for manufacturers and consumers.”

A Modernization of NAFTA Could Be Beneficial

The economic report follows nearly a year of robust advocacy and congressional outreach by ACC that has focused on growing the benefits of NAFTA for U.S. chemical manufacturers and making the integrated North American supply chain work even more effectively and efficiently. For example, ACC has advocated for a simple, clear, and flexible menu of options for determining country of origin, similar to what other more recent trade agreements provide. ACC believes a modernized agreement should also promote regulatory alignment and strengthen the implementation of OECD Good Regulatory Practices to promote transparency and stakeholder dialogue on regulations.

“Our industry is particularly encouraged by the recent progress negotiators have made to enhance regulatory cooperation between the U.S., Canada, and Mexico, consistent with President Trump’s goal of reducing regulatory barriers to trade,” said Dooley. “By promoting greater alignment of chemical regulations based on a risk- and science-based approach, North American chemical regulations can serve as a model for the rest of the world.”

Grim Outlook in Case of U.S. Withdrawal

“NAFTA has protected the U.S. and our investors from extreme tariff uncertainty for more than two decades,” said Emily Sanchez, director of economics and data analytics at ACC, and one of the lead authors of the report. “Without those protections in place, tariff rates could rise dramatically, creating a domino effect that puts American businesses, investment, and jobs at risk.” According to the report, U.S. chemicals exports to NAFTA partners could drop by as much as USD 22 billion, or 45 % of the current export total, creating a total lost chemistry demand of USD 29 billion when contractions in end-use industries such as automotive, electronics, and appliances are combined with direct losses to chemistry exports.

Increasing the costs to do business in the U.S. will invite lower-cost competitors to enter or increase their presence in the U.S. market, the ACC report says. China has deepened its trading relationships with Canada and Mexico in recent years. North American chemistry imports from China more than doubled to USD 35 billion between 2005 and 2015, according to ACC analysis. Without NAFTA, tariffs will increase the cost of U.S. goods for Canadian and Mexican firms, making chemicals and plastic products from China more affordable and attractive. The U.S. would effectively forfeit its North American market position to China.

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