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Revised NAFTA deal is a win for Trump and Texas

October 10, 2018

After months of bluster and uncertainty, the Trump administration has agreed to an updated trade agreement with Canada and Mexico.

The agreement has received mixed reviews from experts, but ultimately, this is a win for all three nations and a win for President Donald Trump.

Why? Because any agreement that maintains the economic ties between Mexico, Canada and the United States is vastly superior than the alternatives of blowing up the North American Free Trade Agreement or moving forward with bilateral deals with our two closest allies and most important trading partners. For Trump, this deal shows he can reach a substantive and positive end to negotiations despite his caustic rhetoric.

But question: Why achieve with caustic rhetoric what could’ve been achieved without the alienation and threat of trade war (which, because tariffs on aluminum and steel remain, still exists)?

The agreement, dubbed the United-States-Mexico-Canada Agreement, cracks open Canada’s market for American dairy farmers and wineries, a key sticking point in negotiations.

It raises the threshold for vehicle production in North America. At present, 62.5 percent of a vehicle’s content must be made in North America to qualify as tariff-free. That would increase to 75 percent. It also mandates that more and more parts in these vehicles — eventually reaching 40 percent — are produced in factories that pay at least $16 an hour in average wages to production workers. This could potentially shift some manufacturing from Mexico to the U.S. and Canada. But some experts have warned it might increase the cost of vehicles or drive auto production to other markets, such as China. Also, the wage is not indexed to inflation.

For what it’s worth, Ford Motor Co. has said it’s “encouraged” by this update.

The agreement also spares Mexico and Canada from the threat of tariffs on imported vehicles. And it spares the United States the retaliatory tariffs that would have occurred.

It retains a key provision for challenging tariffs and other actions before a neutral panel comprised of representatives from all three countries. The Trump administration had sought to eliminate this.

There are also important updates to intellectual property and e-commerce issues, including patents and domain names. These were needed.

Trump has repeatedly derided NAFTA, but numerous economic studies and reports have shown it has been modestly beneficial to the U.S. economy. It has even kept some manufacturing in North America that otherwise would have moved to China.

And it is incredibly important to Texas, which exported $264 billion in goods in 2017, according to the International Trade Administration. Our top markets? Mexico and Canada.

A trilateral deal was crucial.

Several important issues are not addressed in this agreement. U.S. tariffs on steel and aluminum from Mexico and Canada have not been lifted. Those tariffs have prompted retaliatory tariffs. And, of course, there is that question of Trump’s rhetoric about Mexico and Canada. These are our closest allies, and our relationships with these countries are now in need of repair. They need not have been.

That said, Trump has delivered on a deal that maintains our economic ties and addresses his concerns about fairness. The process wasn’t pretty. The rhetoric was ugly. But this is an agreement that merits congressional approval.

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