Imperfect deal far better than none
It is welcomed news that President Trump has set aside his protectionist tendencies and signed off on revised trade agreements with Mexico, a month ago, and now with Canada. The potential that Trump would take the nation down a path to isolationism, with an absence of rules to govern trade between our neighbors and allies, was real. That would have placed the nation and North America at a great competitive disadvantage globally.
The willingness of the president to endorse revised North American Free Trade Agreements (but don’t call them that!) raises prospects that his administration will ratchet down its trade war tactics and rebuild relationships with other allies in Europe and the Pacific. Who knows, maybe a new multinational Trans-Pacific Partnership could be negotiated, serving as a counterbalance to China’s growing economic influence. It would also need a new name after Trump labeled the TPP deal a job-killing disaster. (It wasn’t.)
Global trade and the business it has generated have lifted millions out of abject poverty. It also contributes to global stability, because nations that are trading partners are less likely to settle disputes militarily.
Many American workers have, however, suffered because of free-trade policies, with good-paying jobs lost when manufacturers moved operations to nations providing cheaper labor. But the rise of a middle-class in prior third-world nations also created new markets for U.S. goods.
The key to winning in the new global economy is not isolation and retrenchment. It involves smart investments in education and retraining, providing the workers who are necessary for a high-tech future where people will program, manage and maintain the robots that will provide much of the labor in our new century of manufacturing.
The bad news is that the president’s anti-trade rhetoric and his 20th century-style imposition of tariffs have needlessly suppressed the markets. A path to rework NAFTA — or whatever these deals will now be called — was open without wielding a sledgehammer.
And while we welcome the deals, they are not very different and, in some respects, less desirable, than the agreement they would replace.
Under the Mexican deal, 75 percent of the value of vehicles exported to the United States would have to come from North American-made parts, up from the current 62.5 percent. This will mean an added challenge in building these cars, adding cost and reducing competitiveness globally. The intent is to force more of the parts to be manufactured on the continent, but it is unclear that positive outweighs the negative.
Car plants in Mexico will have to pay wages of $16 per hour on at least 40 percent of their output, or face a 2.5 percent tariff. This could both serve workers in Mexico by driving up wages and keep some work in the U.S. because the labor cost gap will be lessened somewhat. But cars will be more expensive.
As far as the Canadian deal, it provides some added protection for U.S. farmers, with Canada agreeing to end quotas and price controls on some dairy products. A new tax is intended to discourage Canadian dairy producers from undercutting prices in the United States. But this is largely tinkering on margins, seemingly achievable without the accompanying Trump brinksmanship.
Reportedly, technology driven updates are in the agreements on telecommunications, digital trade and intellectual property protection.
Importantly, the agreements, in trilateral language, maintain dispute resolution mechanisms and extend the pacts for 16 years to provide stability, with a review every six years.
Oddly, the Trump tariffs of 25 percent on steel and 10 percent on aluminum imports remain in effect for Canada. They should be lifted. It’s surprising Canadian Prime Minister Justin Trudeau signed off with the tariffs still in place.
Congress should give its approval. Expect Democrats, in particular, to complain it did not go far enough to protect American jobs. It was encouraging that Senate Minority Leader Chuck Schumer, D-N.Y., had kind words.
“As someone who voted against NAFTA and opposed it for many years, I knew it needed fixing. The president deserves praise for taking large steps to improve it,” he said.
Congressional Republicans should certainly return to their free market roots, which they abandoned to placate Trump’s isolationist tendencies, and OK the new deals.