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Research from Fitch Ratings looks at how an overhaul of the trade deal could affect U.S. states.
Michigan will be the U.S. state most vulnerable to economic risk if President Trump makes good on his pledge to renegotiate the North American Free Trade Agreement, or to withdraw from the pact entirely, a credit rating agency said this week.
Fitch Ratings Inc. said that if NAFTA is altered it could hurt state sales and income tax collections in Michigan, which might also put a crimp on revenue sharing with localities and school funding. Texas and California are the states Fitch said would be most immune to possible changes to the trade deal, which includes the U.S., Canada and Mexico.
“Michigan appears to have the most to lose from potential NAFTA changes, as its economy is the most interconnected of all U.S. states with Canada and Mexico,” a Fitch report issued Wednesday says.
It adds that the state “would be uniquely exposed if NAFTA’s terms changed dramatically given the state’s globally prominent automotive role and close proximity to Canada.”
The Fitch analysts caution that details about the Trump administration’s trade policies remain unclear, complicating forecasting efforts. But this week the president showed no signs of backing off his criticism of NAFTA.
“We're working right now on NAFTA, the horrible, terrible NAFTA deal that took so much business out of your state and out of your cities and towns, and we're working on it,” Trump said during remarks at an event in Springfield, Missouri on Wednesday. “Let's see what happens.”
Trade negotiators from the U.S., Canada and Mexico were set to begin a second round of talks on Friday in Mexico that would focus on reworking NAFTA, Reuters reported Thursday.
An analysis of U.S. Census Bureau and International Trade Administration data by Fitch analysts found that, all together, 65 percent of Michigan’s exports went to Canada and Mexico in 2016, accounting for 7.4 percent of the state’s gross product.
The report notes other states as well with high volumes of exports to Canada and Mexico.
North Dakota, Maine and Montana are among the states with the most robust export ties to Canada, based on the analysis.
Mexico, meanwhile, took in 40 percent of Texas’ exports by product value last year. South Dakota, Nebraska, Iowa, Kansas and Missouri have also had strong export relationships with Mexico, driven primarily by agricultural trade.
“We got to change this deal,” Trump said Wednesday, referring to NAFTA. “And hopefully we can renegotiate it. But if we can't, we'll terminate it and we'll start all over again with a real deal.”
Bill Lucia is a Senior Reporter for Government Executive’s Route Fifty and is based in Washington, D.C.