Deardorff predicts trade deal’s long-term ramifications on Michigan’s economy

February 6, 2020

President Trump has been eager to pull out of the North American Free Trade Agreement. Last week, he signed a replacement deal: the United States-Mexico-Canada Agreement (USMCA). This deal garnered bipartisan Congressional support for its emphasis on domestic job creation and inclusion of worker and environmental protections. Alan Deardorff, professor at the Ford School, predicted the long-term effects of the USMCA deal on the Michigan economy in a Bridge MI article on January 30. 

Among other provisions, USMCA requires 75 percent of car parts be manufactured in the U.S., increases wages for domestic automotive workers, and adds 2.5 percent tariffs on imported products. “One of the reasons for [increasing wages] is to try to move some employment out of Mexico and the rest of the world to the United States,” Deardorff said. 

While this is a promising short-term outcome for Michigan’s auto-industry economy, Deardorff and others are apprehensive regarding the long-term effects. For example, USMCA’s higher wage and tariff policies will increase car companies’ expenses. 

“It’s going to hurt their profits, it’s probably going to raise their prices, and probably going to reduce the amount they sell,” Deardorff said. “If we end up selling fewer cars because of the higher price, maybe there wouldn’t be more workers employed because we’ll be making fewer cars.”

Read the full article here.

Alan V. Deardorff is the John W. Sweetland Professor of International Economics and a professor of public policy. His research focuses on international trade. With Bob Stern, he developed the Michigan Model of World Production and Trade, which has been used to estimate the effects of trade agreements. Deardorff is also doing theoretical work in international trade and trade policy. He has served as a consultant to the U.S. Departments of Commerce, Labor, State, and Treasury and to international organizations including the Organization for Economic Cooperation and Development and the World Bank. Alan received his PhD from Cornell University.