Southern Arizona faces an economic hit if a trade war breaks out


President Trump and jazz singer Ella Fitzgerald have something in common—and before that image burns into your mind, we'll quickly state it involves lyrics to one of her songs, Undecided...

"First you say you do, and then you don't, then you say you will, and then you won't. You're undecided now, so what are you gonna do?" she sang, and The Donald took that message to heart, making it his game plan when it came to NAFTA, the North American Fair Trade Agreement.

Initially calling it, "The worst trade deal in the history of the world," he has hemmed and hawed his way through reluctant renegotiations of the US/Mexico/Canada pact. Waffling on a stance that leaned toward total withdrawal of the multi-billion-dollar agreement, and despite his repeated campaign crowd-pleaser that he would kill the pact if he couldn't strike a renegotiation to his liking, he now says it's "my privilege to bring NAFTA up-to-date through renegotiation (that) will make all three countries stronger and better."

Weeks ago, in early February, U.S. Trade Representative Robert Lighthizer was optimistic. "We're making good progress on NAFTA, real headway (and) I think a deal is very much in reach." Then, just a few weeks ago, Trump himself advised: "There's no rush. We're working hard on NAFTA, and we'll have something, I think, fairly soon."

All previous Washington-speak subjectivity aside, Trump's top economic adviser is also now predicting that positive news will soon be announced. According to Reuters, Larry Kudlow said in early April, "Don't hold me to the timing here, but I think you're going to see some positive news on reforming and maintaining NAFTA that the stock market is going to love." His caveat was: "Subject to daily change."

Then there's all the talk of tariffs and trade wars and potential economic devastation that an imbalance in the import-export arena. Whatever happens, Arizona will be impacted, with one study ranking Arizona within the Top 10 states most vulnerable to NAFTA trade disruptions and among the four states that share a border with Mexico, Arizona would be the second most vulnerable.

The Arizona Republic reported that a repeal of NAFTA "could threaten $5 billion in Arizona exports. 1.6 percent of the state's domestic product, would be vulnerable to trade disruptions that would potentially impact 236,000 Arizona jobs...job losses if the U.S. were to withdraw from NAFTA."

If you really crave cringeworthy numbers, the American Action Forum, a center-right policy institute, reports that withdrawing from NAFTA "would affect over $1 trillion in trade and would put 14 million U.S. jobs at risk."

Depending on your political persuasion and level of optimism, if/when the trade and tariff kerfuffle completely explodes, how will we be impacted in Southern Arizona, the second most vulnerable state (after Texas) of the four states that share a border with Mexico?

"I think everybody is just waiting for what will finally be realized out of all the big talk going on," says University of Arizona professor Vera Pavlakovich-Kochi, senior regional scientist in the Eller College Business Research Center. "Like many researchers, I am frustrated because decision-makers do not look at the data that could help them make those decisions. And while I don't have specific estimates of exactly how any modification or even elimination of NAFTA would directly impact Arizona's economy, I've previously noted those results would be negative."

Tucson Mayor Jonathan Rothschild has long been a strong proponent of Ambos Nogales cooperation between governments on both sides of the border. He cringes at the thought of a 23-year-old agreement being radically revised or rendered useless entirely. "From both an import and export standard, Mexico is, by far, Arizona's largest trading partner and thousands of jobs here depend on having continuing good trade relations with Mexico," Rothschild says. "While there is room for some mutually-agreed-upon revisions to NAFTA, simply walking away from this decades-long agreement would be a significant blow to our local, state and national economy, not to mention how it would diminish our country's standing—even relevance—with the rest of the world."

Nobody in the region brings bigger vocal cords to the conversation than the Fresh Produce Association of America in Nogales, serving the needs of over 100 North American companies involved in the import and distribution of Mexican produce. Their web page reads: "Farmers and ranchers have been among the biggest beneficiaries of NAFTA and will be the ones to feel the most pain if America withdraws from the pact. A withdrawal would result in a massive tax on the products American farmers grow and produce, a tax in the form of tariffs that were all but eliminated more than two decades ago when NAFTA began."

FPAA Director Lance Jungmeyer says, "A pullout from NAFTA would be devastating for Southern Arizona with all its industries tied to fresh produce and the maquiladoras, not to mention a heavy reliance on tourism and shopping dollars from our neighbors in Mexico. According to UA studies, 25 percent of the wages in Santa Cruz County and one third of its economic impact is tied to fresh produce and if this industry is negatively impacted, Southern Arizona would lose in a lot of ways."

"Quitting NAFTA would be an economic, political and national-security disaster," says U.S. Chamber of Commerce Vice President John Murphy. To which, Paola Avila, Chair of the Border Trade Alliance in San Diego, adds the definitive: "Losing NAFTA would be devastating."

FPAA statistics show the U.S. last year exported more than $43 billion to consumers in Mexico and Canada. Arizona exports include manufacturing products and agricultural goods originating in the state and shipped to those two countries.

According to the most recent (March 2018) Quarterly Update by the UA's Economic and Business Research Center, Eller College of Management: "Arizona exports $629 million a month in merchandise to Mexico (including $290 million in fresh produce—up 27 percent from a year ago).

Before the current emotionally-charged negotiations got underway, a Western Farm Press article titled, "Ag Groups Urge Reasoned Trade Approach From Administration," noted, "U.S. Forecast for export of agricultural goods in 2018 will be $139.5 billion."

So, Donald, what are you gonna do?

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