However, reaching a new agreement would likely be complicated by three main factors:

Mexican approval. It may seem that the United States, as the far wealthier country and the source of most foreign direct investment into Mexico, should have the upper hand in negotiations to revise NAFTA. However, politicians on both sides of the border will have to consider domestic political sentiments, which may become more important than economic arguments.
U.S. Congress approval. The second main obstacle to renegotiation is the U.S. Congress. A new NAFTA would have to be approved by Congress in the face of competing and often opposing regional interests that cut across political-party lines.
Lower corporate profits. The other major complication is the extent to which North American supply chains are integrated across the U.S., Canada, and Mexico, and the extent to which American companies exporting to the rest of the world depend on these regional—rather than strictly U.S.-based—supply chains. A large number of U.S. companies would incur severe losses should cross-border trade become less free. We predict that the fallout of canceling or severely restricting NAFTA, in terms of job losses in the United States, would be far higher than any corresponding job gains that result from pressuring companies to build more factories in the U.S. Certainly, the job losses would be felt more immediately.

Based on a Dun & Bradstreet analysis, we assign a 70 percent probability that the administration will renegotiate NAFTA such that the new agreement includes labor and environmental provisions, which will increase the cost of production in Mexico, but will otherwise include very few changes that could be labeled a "trade barrier."

Instant Insights /

Winners and Losers from Shifts in U.S. Trade Policy

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