Successful renegotiation of NAFTA is likely but will not provide the template for the US administration’s future China policies.
- US-Mexican trade is dominated by global value chains. US-sourced content in Mexican exports to the US is 40% so it is impossible for Trump to realize his threats to impose border taxes on Mexico without causing major damage to US manufacturing jobs.
- This makes a successful renegotiation of NAFTA both possible and probable.
- But the same cannot be said about US-China trade, which lacks such well-developed channels for trade. As a result, the risk of a worst-case protectionist scenario in US-China trade cannot be dismissed.
- This “new globalization” has vastly complicated the policy challenges facing governments owing to the increased complexity and interconnectedness of goods crossing borders. The issues raised by a renegotiation of NAFTA are also relevant for what happens in Brexit.