Trump’s New Nafta Pact Looks More Like a Rebranding Than a Revolution
(Bloomberg) -- One of President Donald Trump’s most consistent economic promises has been to spark a revolution on behalf of those Americans forgotten by the new global order, and to renegotiate trade deals that he says have given U.S. allies and adversaries alike a leg up on domestic workers.
In rewriting the North America Free Trade Agreement he risks falling short, instead endorsing a rebranding of the 1994 accord he labeled a “disaster” rather than a wholesale insurrection.
The U.S.-Mexico-Canada Agreement, clinched just before a midnight deadline on Sunday, reads more like an amalgam of the existing Nafta along with certain provisions from the 12-nation Trans-Pacific Partnership that Trump pulled the U.S. out of on his first full working day in office.
The risk, according to some economists, is that Nafta 2.0 imposes more regulatory demands on companies including automakers and ends up hurting rather than helping North America’s competitiveness versus rivals like China.
“The Trump administration will not have ‘fixed’ Nafta, they will have added bricks to ‘Fortress America’,’’ said Mary Lovely, a Syracuse University economist.
Political Win?
One result in her view: higher costs for U.S.-based businesses, meaning some may shift production out of North America all together.
That doesn’t mean that Trump won’t celebrate the new pact as a major political win.
Many in the U.S., Canadian and Mexican business communities will just be glad that there is a deal at all. Corporate executives had feared Trump might carry out his threat to pull out of Nafta and thus upend the region’s highly-integrated supply chains.
Many of the modernizations lost with the passing of the TPP have also now been restored and there are some important additions and subtractions to the original 1994 Nafta.
For one thing, complicated new regional content requirements for cars include one that 40 percent of a vehicle made in North America come from factories with a $16-an-hour average wage or higher. That guarantee should benefit producers and workers in the U.S. or Canada.
Auto Tweaks
The U.S. also retained the right to impose tariffs on vehicles imported from Canada or Mexico once those shipments hit a 2.6-million-car threshold, a move that echoes what economists consider misguided efforts to restrain auto imports in the 1980s.
Trump will also be happy with a provision that will effectively bar any of the three members from negotiating a trade deal with a “non-market economy” such as China, something that could hinder Canada’s exploration of such an agreement. It also contains the sort of tougher intellectual property protections for pharmaceuticals and longer patents the U.S. always seeks in trade accords.
U.S. dairy farmers will now be allowed to sell more duty-free milk to Canada than they currently do, though at a level largely in line with that negotiated in the TPP. A provision that allows U.S. and Canadian companies to take disputes with Canada and the U.S’s national, state and local governments to arbitration panels has been pulled. There are stricter labor provisions that Mexico will have to live up to.
Taken together, the Trump administration says, the UMCA will encourage more manufacturing in the region and act as a counter to China’s growing weight in industry. That’s all in keeping with what Trump has sought in fighting trade wars regionally and globally.
‘Smoke and Mirrors’
Some important political constituencies though have doubts. Richard Trumka, the president of the AFL-CIO, on Sunday said he saw “too many’’ details that still needed to be worked out before he can lend his support.
That matters because the Trump administration has been courting the U.S.’s largest labor group to bring Democratic votes with it when the deal eventually goes before Congress in the months ahead.
“We still don’t know whether this new deal will reverse the outsourcing incentives present in the original Nafta,’’ Trumka said.
Dani Rodrik, a Harvard University economist who has frequently railed against the same march of globalization that Trump has targeted, sees an elaborate illusion in the new Nafta.
“Trump is more interested in smoke and mirrors -- the optics of striking a deal that seems advantageous to him -- than in real changes in trade agreements,’’ Rodrik wrote in an email.
No revision to Nafta “will bring jobs back and restore health to those communities that were adversely affected,” he said. “The amount of political and negotiating capital that has been spent on it does not justify any of it,’’ he wrote.
Farm Belt Rebellion
In the end, the new deal unveiled on Sunday is above all a reflection of how Trump has been forced to confront economic and political realities as he has tried to deliver his trade revolution.
His threats to abandon Nafta -- together with his escalating tariff war with China -– prompted a Farm Belt rebellion that his own Republicans fear could hurt them in November’s mid-term elections.
Republicans in Congress also lashed out at administration figures like U.S. Trade Representative Robert Lighthizer. Establishment business bodies like the U.S. Chamber of Commerce also blanched at the administration’s rhetoric.
The lesson of Trump’s Nafta adventures is simple, said Gary Hufbauer, a recently-retired trade expert at the Peterson Institute for International Economics.
“Vested interests in cross-border supply chains are very strong,’’ he said. “Politicians interfere with them at their peril.”
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