Michigan economy threatened by end of NAFTA, report says

A new report from rating agency Moody’s indicates that Michigan is one of the most vulnerable states if the United States withdraws from the North American Free Trade Agreement (NAFTA). The report indicates that Michigan, Texas, Vermont and North Dakota are most at risk of NAFTA withdrawal.

According to the report, exports to NAFTA partners represent 7% of Michigan’s gross state product, and imports from NAFTA partners represent 20% of Michigan’s GSP. It also indicates that Detroit is particularly vulnerable to trade volatility with Canada and Mexico due to the concentration of auto manufacturing in the region. The automotive industry imports intermediate auto parts and exports finished cars.

However, not all economists agree that Michigan is at particularly high risk. In a report released in November 2017, the University of Michigan’s Research Seminar in Quantitative Economics released its own report on the effect NAFTA could have on the state’s economy. Their report predicts that Michigan would be able to absorb the shock of a withdrawal from NAFTA with fairly modest losses in terms of jobs and income.

Gabe Ehrlich is an economist at UM’s RSQE. “Our baseline analysis suggests that while Michigan runs the risks of withdrawing from NAFTA, those risks are not as extreme as some other analyzes we’ve seen might suggest,” Ehrlich said. “We also think it’s important to keep in mind that in some respects Michigan will receive tariff protection on one of its key exports, which is light trucks.”