Michigan is likely to be the state most hurt by changes to the NAFTA trade agreement, according to a Fitch Ratings report released Wednesday, as U.S. President Donald Trump renewed threats to scrap the deal.
Trump has threatened three times in the past week to abandon the North American Free Trade Agreement, revisiting his view that the United States would probably have to start the process of exiting the accord to reach a fair deal for his country.
A second round of talks starts Friday in Mexico City to renegotiate the 1994 accord binding the United States, Mexico and Canada.
Business groups have largely praised NAFTA and hope to persuade all three governments to make minimal changes to the pact. U.S.-Canada-Mexico trade has quadrupled since NAFTA took effect in 1994, surpassing $1 trillion in 2015.
Michigan's auto sector
While several other states export a significant amount of products to Canada and Mexico, Michigan is an outlier in Fitch’s analysis because of the state’s global role in the automotive sector and proximity to Canada, the report said.
Sixty-five percent of the Michigan’s exports went to Canada and Mexico in 2016, totaling 7.4 percent of its gross state product, it said.
“Any state that is particularly export dependent or exposed to trade, if there’s a falloff in trade it’s going to hit income and sales taxes and that’s going to weaken state revenues,” said Michael D’Arcy, a director of U.S. public finance at Fitch. “Cuts would have to be made.”
Anna Heaton, a spokeswoman for Republican Michigan Governor Rick Snyder, said in a statement to Reuters that Canada, Michigan’s No.1 trading partner, has been important to the state’s economic recovery but he understands that sometimes policies need to change.
11 states trade heavily with Canada
According to the report, 11 U.S. states send at least 30 percent of their exports to Canada. By merchandise value, 82 percent of North Dakota’s exports went to Canada in 2016. Forty-three percent of New Mexico’s exports were sent to Mexico.
Several states also import a substantial amount of Canadian goods.
“A unilateral U.S. withdrawal from NAFTA would sharply increase import tariffs overnight, entailing potentially substantial costs for U.S. importers and consumers,” the report said.
Major metropolitan areas could also be affected by U.S. trade policy changes, with Texas’s El Paso MSA, or metropolitan statistical area, left vulnerable to NAFTA changes, the report said. Exports to Canada and Mexico accounted for 91 percent of the MSA’s exports.