Discussion Paper

U.S. Exporters Could Face High Tariffs without NAFTA

Abstract: An underappreciated benefit of the North American Free Trade Agreement (NAFTA) is the protection it offers U.S. exporters from extreme tariff uncertainty in Mexico. U.S. exporters have not only gained greater tariff preferences under NAFTA than Mexican exporters gained in the United States, they have also been exempt from potential tariff hikes facing other exporters. Mexico’s bound tariff rates—the maximum tariff rate a World Trade Organization (WTO) member can impose—are very high and far exceed U.S. bound rates. Without NAFTA, there is a risk that tariffs on U.S. exports to Mexico could reach their bound rates, which average 35 percent. In contrast, U.S. bound rates average only 4 percent. At the very least, U.S. exporters would be subject to a higher level of policy uncertainty without the trade agreement.

Keywords: tariffs; Mexico; exports; imports; NAFTA;

JEL Classification: F00;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2017-04-17

Number: 20170417