Toward a North American Economic Union.
By Nouriel Roubini
Trade and political tensions between the United States and its immediate neighbors, Canada and Mexico, are at historic highs, raising fears of a full-scale trade war and a collapse of the US-Mexico-Canada Agreement (USMCA), which itself was a renegotiation of the North American Free Trade Agreement. The way President Donald Trump tells it, both countries could be doing more to rein in the flow of migrants and fentanyl. Moreover, since each runs a large trade surplus vis-à-vis the US, he accuses them of unfair trade practices, and of serving as a foothold for Chinese exporters seeking to circumvent US tariffs.
But Trump is not only pressing these concerns. He is also insulting both countries, by arguing that Canada should give up its sovereignty and become America’s 51st state, renaming the Gulf of Mexico, and threatening US military operations against drug cartels inside Mexico.
While the most likely outcome is an eventual renegotiation of the USMCA that leads to some modest tariff increases but mostly maintains the free-trade area, this would be a sub-optimal scenario. To resolve the fundamental sources of tensions, avoid future conflicts, and increase growth and welfare for North America, all three countries should start drafting plans for a North American Economic Union: a single market with full free trade not just in goods – as in the current free trade area – but also in services, capital, labor, technology, data, and information.
Read the full Project Syndicate article.
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Nouriel Roubini is a Professor Emeritus of Economics and International Business and the Robert Stansky Research Faculty Fellow.