New supply chain study confirms dangers of NAFTA withdrawal

January 16th, 2018

A new report from Harvard economist Alonso de Gortari has found that the potential cost of disrupting North American supply chains is being critically underestimated.

Gortari’s research found that Mexican goods exported to the U.S. under the North American Free Trade Agreement (NAFTA) incorporate far more U.S. made inputs than previously thought. These inputs range from U.S. designed software running Mexican-built cars to American hydrocarbons providing the building blocks for Mexican plastic.

The study, which looked at U.S.-Mexico supply chains in unprecedented detail, found that at least 27 percent of the value of the $118bn worth of finished and intermediate goods imported into the U.S. from Mexico each year actually originates in America.

Another 2011 study from the National Bureau of Economic Research found levels of U.S. content in Mexican imports as high as 40 percent, compared to just 4 percent in imports from China.

As the Wilson Center put it in their own analysis, “Despite a ‘Hecho en México’ or ‘Made in Mexico’ label, a large portion of the money U.S. consumers spend on Mexican imports actually goes to U.S. companies and workers.”

In contrast, the Commerce Department uses a figure of 16-17 percent, which Gotari’s study found underestimates U.S. content badly by assuming that all intermediate producers used identical goods—in real world terms they assumed that every tire company used exactly the same rubber, ignoring differences in quality, specialized uses, etc.

Since so many Mexican finished goods are created using American products, that additional content translates into tens of billions of dollars each year and thousands of American jobs supported by Mexican demand that have not been previously accounted for.

The findings provide yet more evidence that the impacts of a NAFTA withdrawal could be devastating to American industry in ways that are only beginning to be understood.

The study found that Mexican exports to the U.S. contain substantially more American-made inputs than Mexican exports to any other country.