Must see TV: why gutting NAFTA unlikely to create U.S. jobs

Tue Oct 25, 2016 9:50am EDT
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By Timothy Aeppel

CUIDAD JUAREZ, MEXICO (Reuters) - Both U.S. presidential candidates routinely criticize free-trade deals they blame for the loss of American jobs.

But tweaking the North American Free Trade Agreement (NAFTA), as Hillary Clinton has pledged to do, or ripping it up, as Donald Trump demands, may do nothing to help companies like Element Electronics Corp, which owns America’s last television factory.

Winnsboro, South Carolina-based Element, and the television industry more broadly, offer a window into the complexity of industrial supply chains and illustrate why pushing manufacturing jobs back to the United States is so difficult.

Element's plant in South Carolina is nearly identical to a rival factory operated by Taiwanese conglomerate Tatung Company that sits on a dusty back street in this Mexican border town. Both import nearly all their components from Asia. The parts often flow in through the same southern California ports.

But there's a big, and costly, difference. The Mexican plant, by sitting just over the border from El Paso, Texas, doesn't have to pay duty on those parts, even when the finished televisions are sold in the United States. But Element's factory has to foot the tariff bill, which makes its televisions more expensive. (For a graphic on the trade loophole, click )

"It's pretty crazy that I'm disadvantaged for using U.S. labor," says Michael O'Shaughnessy, Element’s president.

That's a sentiment that Trump, the Republican nominee, has forcefully tapped as he makes the case that radically revamping the trade deal would level the playing field and bring jobs back. Many trade experts, though, say it would be a costly disaster to try to unravel these production networks, which essentially treat Mexico as a 51st state.

The Peterson Institute for International Economics, a Washington think tank that favors free trade, released a study last month that predicted imposing stiff tariffs on Mexico and China would disrupt North American producers that have created global supply chains and push the United States into a recession.   Continued...

Republican U.S. presidential nominee Donald Trump speaks as Democratic U.S. presidential nominee Hillary Clinton listens during their third and final 2016 presidential campaign debate at UNLV in Las Vegas, Nevada, U.S., October 19, 2016.   REUTERS/Mark Ralston/Pool