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Report says Michigan economy at risk from ending NAFTA

Mar 16, 2018

A new report from Moody's credit rating agency says that Michigan is one of the most vulnerable states if the U.S. withdraws from the North American Free Trade Agreement (NAFTA). The report says that Michigan, Texas, Vermont, and North Dakota have the most exposure to risk from NAFTA withdrawal.

According to the report, export to NAFTA partners accounts for 7 percent of Michigan's gross state product, and import from NAFTA partners accounts for 20 percent of Michigan's GSP. It also says that Detroit is particularly vulnerable to trade volatility with Canada and Mexico due to the concentration of auto manufacturing in the area. The auto industry imports intermediate car parts, and exports finished cars.

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

Gabe Ehrlich is an economist with UM's RSQE. "Our baseline analysis suggests that although Michigan races risks from the NAFTA withdrawal, those risks are not as extreme as some other analyses we have seen might suggest," says Ehrlich. "We also think it's important to keep in mind that in some ways Michigan stands to benefit from tariff protection on one of its major exports, which is light trucks."