A key member of the U.S. Federal Reserve is warning against destroying trading partnerships between the U.S., Canada and Mexico, saying it would eliminate jobs and hurt his country's competitiveness.
"I don't want to see us do something that will jeopardize those relationships. It will cost U.S. jobs," Dallas Federal Reserve president Robert Kaplan said at an event in Toronto. "I feel very strongly that the trade relationships with Canada and Mexico are central to U.S. competitiveness," he said.
Last week, the Trump administration formally notified the U.S. Congress that it intends to renegotiate the North American free-trade agreement and talks between the three countries could start as soon as August.
It is unknown whether and when a new pact would be brokered. But Canada and the U.S. are already embroiled in a trade spat, with Ottawa threatening to kill a multibillion-dollar purchase of Boeing Co. fighter jets if Washington goes ahead with harmful trade action against Montreal's Bombardier Inc.
The Dallas Fed chief, who represents Texas, northern Louisiana and southern New Mexico in the Federal Reserve System, did not comment on the recent disputes but said he was hopeful that trade agreements "will get negotiated in a constructive way."
"If we didn't have these relationships in this hemisphere, we would likely lose those jobs to Asia," Mr. Kaplan said.
U.S. trade is critical to Canada, with three-quarters of Canadian exports flowing south of the border. Texas is a major trading partner with Canada.
Last year, the southern state exported nearly $20-billion (U.S.) worth of goods north of the border and imported $15-billion from Canada, according to Statistics Canada. Those goods included fuel, aircraft and plastic products.
Revamping NAFTA could upend global supply chains, where goods such as auto parts move across the three borders multiple times as they are being assembled into a finished product.
Mr. Kaplan was speaking in Toronto on the same day that the Federal Reserve released minutes from its May policy meeting. The minutes suggested the central bank could raise rates at its next rate-setting day in June if data showed the economy was strengthening.
Mr. Kaplan, who this year became one of the Fed officials who get a vote on monetary policy, has said three rate hikes this year are his "base case." He would not comment on whether he thought a rate hike was the right course of action for the June meeting.
However, Mr. Kaplan predicted that "normalizing," or gradually increasing rates from rock-bottom lows, would be "as or more difficult" than during the 2008 financial crisis, when the Fed used emergency measures to prop up the financial system and halt an economic free fall. "People shouldn't think that this is going to be easy," he said.
Since the housing collapse and ensuing recession, the U.S. central bank has raised rates three times with the most recent hikes in December and March.
Unlike the U.S., Canada's central bank has not started raising rates. On Wednesday, the Bank of Canada maintained its key interest rate at 0.5 per cent and some economists don't forecast a rate hike in Canada until at least next year.