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Why Renegotiating NAFTA Could Disrupt Supply Chains

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Abstract

Supply chains have become increasingly interlinked across the U.S.-Mexico border. The North American Free Trade Agreement (NAFTA), allowing tariff-free commerce between the United States, Canada, and Mexico, has facilitated this integration. Some critics of NAFTA are concerned about the bilateral trade deficit and have proposed stricter rules of origin (ROO), which would make it more cumbersome for firms to access the zero tariff rates they are entitled to with NAFTA. We argue that measures that make it costlier for U.S. firms to import will also hurt U.S. exports because much of U.S.-Mexican trade is part of global supply chains.

Suggested Citation

  • Mary Amiti & Tyler Bodine-Smith & Caroline L. Freund, 2017. "Why Renegotiating NAFTA Could Disrupt Supply Chains," Liberty Street Economics 20170418, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87190
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    File URL: https://libertystreeteconomics.newyorkfed.org/2017/04/why-renegotiating-nafta-could-disrupt-supply-chains.html
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    Keywords

    supply chains; intermediate inputs; rules of origin; NAFTA;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General

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