The End of North America - Paul Krugman
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The End of North America<br>Neighbors? Who needs them?
Paul Krugman<br>Jul 03, 2026
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In what would be major news except for all the other disasters happening, Donald Trump has declined to renew the USMCA — the successor to the North American Free Trade Agreement — which he himself negotiated. This puts businesses on notice that tariff-free shipments within North America, which NAFTA supposedly made permanent, may go away.<br>Some commentators have dismissed this as no big deal, because Trump’s successor will probably reverse his decision and make the USMCA permanent after all. However, this misses the point of such agreements. Before NAFTA went into effect, North American tariffs were already low. The average tariff imposed by the US on imports from Mexico was only 2 percent. But NAFTA gave more than tariff relief. It gave, or seemed to give, certainty: businesses could invest in border-spanning supply chains confident that they would be able to use these chains for many years to come.<br>Or, as it turns out, not, if we have a U.S. president who doesn’t care about breaking promises.<br>Bloomberg ran a segment about all of this, with a substantial part coming from an interview I had with David Westin a few weeks ago:
Transcript :<br>Westin We start with the poster child for North American trade, the auto industry. Since the USMCA’s predecessor, NAFTA, came into effect over 30 years ago, autos have been at the center of negotiations. The reason is simple. The industry is tightly integrated across northern and southern US borders, borders like the one between Detroit, Michigan and Windsor, Ontario. This is the brand new Gordie Howe International Bridge that spans the Detroit River, separating the Motor City from Windsor. It was named for the famed hockey player who was born in Canada but crossed the border to lead the Detroit Red Wings to four Stanley Cups. Canada paid for the bridge, but now President Trump has put its opening on hold, which in itself is unlikely to divide the two cities’ economies.<br>Krugman Those are not really separate cities. There just happens to be a borderline through them.<br>Westin Economist Paul Krugman won the Nobel Prize for his work on trade.<br>Krugman Stuff does go back and forth. There’s a tremendous amount of specialization, which is good for everybody. It reduces costs, increases efficiency.<br>Westin: One of the companies benefiting from that back and forth trade is Linamar, a manufacturer with headquarters outside of Toronto. Jim Jarrell is its CEO.<br>Jarrell So we’re 60 years old and really I think when you look at Linamar, we’re an advanced manufacturing and product design technology company with 37,000 people global, 87 facilities around the world.<br>Westin: When we talk about the auto part of Linamar’s business, how much of your production goes across either the Canadian-U.S. border or the U.S.-Mexican border or for that matter Canada-Mexico?<br>Jarrell I would say a ton. There is so much interconnection, integration between it. And I think we’ve demonstrated this before. We have one part that we do for an OEM customer, two OEMs in the U.S. and the original part that we get is a forging that comes into Mexico, which goes into the U.S. to get some further processing, comes into Canada for further processing, back to the U.S. for further processing, over to Canada where we do the sort of final assembly, and then that gets distributed back into the U.S.as well as Mexico and Canadian auto plants. So again, you can see this full integration Of this, you know, supply chain in the automotive North American area. And one thing we say is you can’t unbake the omelet, right?<br>Manufacturing has become a regional game.<br>Westin: Shannon O’Neil is the director of studies at the Council on Foreign Relations, author of the book, “The Globalization Myth, Why Regions Matter,” and a Bloomberg opinion contributor.<br>O’Neil The strength, frankly, of the U.S. auto industry is really a North American auto industry. It is that because cars and car parts are produced across Mexico, Canada, and the United States, they are strong, they are competitive and they’re affordably priced. And it’s that connection, those supply chains across North America that are important for autos. important for all kinds of manufacturing.<br>Westin: Given how the, I’ll call it, North American auto industry has evolved, is it even possible to cut off imports and exports of automobiles and auto parts between the United States and Canada and/or Mexico?<br>O’Neil There’s a real question if we didn’t have NAFTA, if we didn’t have USMCA, would we have a North American car industry at all, if we didn’t have the economies of scale of production that have now developed over North America? Could we bring back just a U.S.-produced car? Sure, we could, but it would be a much more expensive car. It would likely be a less innovative car in terms of the parts that go into it....