The new, improved NAFTA
Nearly two years after Donald Trump was elected president with promises to rework America’s relationship with its trading partners, and less than two months after he agreed to a new trade deal with Mexico, the president succeeded in bringing Canada on board a new trilateral North American trade arrangement.
“They” — the commentariat, the Democrats, most Republicans, the media — said the president would never succeed in his quest to reorient the country’s economic relationship with Canada and Mexico. But he has. Goodbye NAFTA. Hello USMCA. At least NAFTA was pronounceable; if you insist on making USMCA a word, you might pronounce something like “Ussum-ca.” (But don’t.)
The North American Free Trade Agreement, the sprawling trade pact forged by Canada, Mexico and the United States and that took effect in January 1994, has been a mixed blessing for the United States. “Sprawling” may be an understatement. Canada, Mexico and the United States trade more than $1 trillion worth of goods each year. On the one hand, as in our trading relationship with China, the deal has provided access for American consumers to cheaply made goods, such as in the case of NAFTA, largely from Mexico. The salutary consequence has been reduced prices of many consumer goods.
But for many Americans, NAFTA has not only reduced prices but reduced wages and standards of living, too. More than a million manufacturing jobs have been lost in the United States since NAFTA was enacted. Even for those keeping their jobs, it hasn’t exactly been boom time. Manufacturing wages have fallen over the same period.
American companies can move easily to Mexico, and businessmen are not stupid. They see that wages are much lower south of the border, and they make the strategic decision to “outsource” operations. General Electric, Caterpillar and Chrysler, for examples, early bolted for the border. The baleful consequence has been a $69 billion trade deficit with Mexico, a source of continuing outrage to the president who calls NAFTA “the worst trade deal ever.”
In August, the president announced a new deal with Mexico that would begin to redress that deficit. One plank of the new deal mandated that 45 percent of automobile components manufactured in North America be done by workers who make at least $16 an hour. That would have the effect of making Mexican factories less attractive to multinational corporations. Another plank of the new deal strengthened data protection rules.
Canada resisted altering NAFTA. But this week, Canada got on board. Each country must still ratify it. “Once approved by Congress,” the president said the following day in the Rose Garden, “this new deal will be the most modern, up-to-date and balanced trade agreement in the history of our country, with the most advanced protections for workers ever developed.”
The United States-Mexico-Canada Agreement, or USMCA , the name Mr. Trump wants to replace NAFTA, keeps the good planks in the new deal with Mexico and reworks the U.S. relationship with Canada. This is overdue. Under NAFTA, Canada is permitted to impose quotas on dairy imports and tax products that exceed the quota by more than 200 percent. This was hardly free, which the president recognized and repeatedly berated for its unfair effects on U.S. dairy farmers.
Under USMCA, the Canadian dairy market is not fully opened up, but Mr. Trump won greater access for U.S. exports. USMCA further mandates 75 percent of components of automobiles manufactured in North America be made up of North American components, or face imposition of tariffs, up from 62.5 percent under NAFTA. That will be a boon to not only American parts manufacturers, but Mexican and Canadian ones as well.
None of this could have been accomplished if President Trump had not scared the pants off Canada and Mexico simply by threatening to simply “terminate” NAFTA. Mexico and Canada are more dependent economically on the United States than vice-versa, a fact the president recognized and used to increase America’s leverage. Indeed, it was clearly by threatening to tear up NAFTA altogether that the dealmaker-in-chief was able to wring concessions from Ottawa and Mexico City. Perhaps Mr. Trump will call his first book after he leaves office “The Art of the Trade Deal.”
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