“They used to call it NAFTA,” President Donald Trump said Monday in explaining his preliminary, bi-lateral update of the 25-year-old three country trade deal between the U.S., Canada and Mexico. The North American Free Trade Agreement, he explained, had “a bad connotation” for the U.S. — perhaps because he had spent the last few years insisting to whomever would listen that it was the “worst trade deal maybe ever signed anywhere,” in contrast to the new agreement, which he bragged (patently falsely) was “maybe the biggest trade deal ever.”
We are by now accustomed to Trumpian hyperbole over everything from his personal wealth to the effectiveness of his nuclear negotiations with North Korea, so it probably is of little surprise that there is far less to this NAFTA renegotiation than he would have the public believe. Most of its provisions relate to the auto industry — an important manufacturing sector, to be sure, but a fraction of the trade covered by NAFTA. In 2017, the U.S. imported almost $90 billion in passenger vehicles from Mexico and Canada, compared to a combined $614 billion in total imports from those two countries (and $525 billion in exports to them).
And the specifics are likely to be marginally helpful to the U.S., at most. The tentative deal increases the share of “auto content” that must be made in the U.S. or Mexico in order to avoid tariffs from 62.5 percent to 75 percent. A mere three models of cars made in Mexico (the Nissan Versa Sedan, the Fiat 500 and the Audi SQ5) would become subject to tariffs as a result of the change. The deal also stipulates that 40 to 45 percent of the auto content must be made by workers earning at least $16 an hour, which might shift some parts production to the United States, though how much depends on the yet-to-be-released details.
Other parts of the agreement are similarly unimpactful. No doubt, intellectual property provisions needed updating for the digital age, and that could have been accomplished without threatening to blow up the entire framework of NAFTA. The environmental and labor standards the Trump administration announced are already covered by the Trans-Pacific Partnership, which both Mexico and Canada signed onto even as President Trump pulled the U.S. out.
Canada isn’t a party to this agreement, but its trade representatives are in Washington this week to try to remedy that. The quick read from analysts and business leaders north of the border is that President Trump and Mexican President Enrique Pena Nieto haven’t agreed to anything that will be a major stumbling block for Canada. The Trump administration’s threats to go ahead without Canada (quite possibly a bluff, since Congress would have to sign off on that) may rankle the Ottawa government, and Canada’s top priority for NAFTA renegotiation, a better dispute resolution process, is absent in the deal. But faced with a choice of swallowing Mr. Trump’s bluster and accepting the status quo on disputes versus being left out of its most important trade deal, there’s little question about which Canada should choose.
Which means the odds are that we’ll end up with an arrangement in which goods flow freely between the U.S., Canada and Mexico — a North American free trade agreement, if you will. A few jobs may move around. Some sectors of the economy may be helped slightly. Americans may pay a tiny bit more for cars. But the fundamental economic arrangement between the three nations will stay the same as it has since President Bill Clinton's first term while President Trump will simultaneously be able to claim an enormous victory thanks to his skills as a master negotiator.
And that’s what this is all about — President Trump being able to say at campaign rallies that he killed NAFTA, not actually doing anything to help those who have been hurt by free trade.
And at what price, this “win” for Mr. Trump? The president has engaged in months of insults against Canadian Prime Minister Justin Trudeau, and in the context of his steel and aluminum tariffs (which are not resolved by this deal), he has claimed that imports from our staunchest ally and closest trading partner represent a national security threat. Now he's saying he could take or leave Canada's participation in this trade deal. Mr. Trump may get what he wants on NAFTA, but what about any of the myriad other issues on which we rely on Canada’s cooperation every day? If this is what Donald Trump means by winning, we may get tired of it, indeed.
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