Apart from a stream of winks and tweets, the most authoritative PowerPoint presentation on the “new Mexican free-trade agreement” is at Reuters.
The North American Free Trade Agreement (NAFTA) drastically reduced trans-border barriers, amplifying commerce even as it disrupted specific jobs. (However, see Tim’s recent article on things that threaten jobs.) President Trump falsely argued that NAFTA was dramatically bad, presumably on the grounds that Clinton-Bush-era negotiators favored commerce while Trump favors workers. Regardless of that, Trump won election, surprisingly carrying the “rust belt” states such as Michigan. To carry them again in 2020, he needs an electoral base — at Ford Motor Company.
The reason we have only bullet points to work from, I presume, is that the agreement is not yet complete. So why announce anything now?
- Because it is the final season in which Trump can negotiate with establishment President Peña Nieto before left-wing López Obrador takes office; and
- Trump badly needs to regain control of the national agenda, after two weeks of recent dominance from the daily bad-news machine of inquisitor Robert Mueller, parading guilty verdicts against Trump associates, for paperwork violations that are rarely prosecuted, to create the aroma of a White House crime syndicate.
Trump’s tax reform was not a tax reform, but a minor tweak to the individual tax code, styled as a temporary overlay, to comply with Senate rules. Likewise, this new free-trade agreement is anything but new. Trump is welcome to drop the term NAFTA, because everyone who came before him was a chump (which sounds rather like Obama), but NAFTA had roughly 1000 pages describing exceptions to free trade, and the new agreement merely massages those exceptions.
The biggest beneficiary seems to be Ford Motor Company; and the biggest victim seems to be auto-parts vendors based outside North America (and to a lesser extent, based outside the US). And there is a bizarre preoccupation (for a trade agreement) with the well-being of Mexican workers.
It requires 40 to 45 percent of vehicles value to be made in high wage areas paying $16 an hour, requiring significant automotive production in the United States.
This has been discussed before on this website. But, no, we don’t care how much Mexican workers are paid. The $16 figure, six times the typical wage at Mexican parts vendors, is there because writing “in high wage areas” means you don’t have to write “in the United States,” which would be a harder sell in Mexico.
The pact also requires greater use of U.S. domestic steel, aluminum, glass and plastics.
I thought we did this with those taxes on foreign steel and aluminum.
The new deal will keep tariffs on agricultural products traded between the United States and Mexico at zero and addresses agricultural biotechnology to support innovations in agriculture.
And thumb our noses at the anti-GMO activists? But what if it turns out that the most cost-effective way to improve agricultural productivity has nothing to do with biotech? What if anti-GMO catches on, and the biotech we are promoting produces agricultural products that consumers won’t buy?
By the way, maintaining zero tariffs on agricultural products is the one bit of this article that has anything to do with free trade.
The U.S.-Mexico NAFTA deal opens the door for Canada to immediately rejoin the talks and is a major step forward in updating the 24-year-old accord.
Commencing negotiations with the more willing trade partner, and then telling the remaining partner to take-it-or-leave-it, is a deft negotiating ploy. Except that there are entirely separate things we want from Canada, notably, markets for products that are effectively closed to American goods.
So the 1994 round of international racketeering is replaced by a 2018 round for which Donald Trump can take personal credit. The US assents to Mexico violating the rights of American traders, in ways thought to benefit Mexico as a unit, while Mexico assents to comparable but different US violations of the rights of Mexican traders. Just like a high-tax US state, where you can obtain a ten-year tax amnesty for your business if you promise it will do the things that will help the state’s politicians through the next election. Just don’t call it free trade.