Sarah Goldfeder

It Ain’t Over if Trump’s Not Win­ning: The USMCA Score­board

Policy - - In This Issue - Sarah Goldfeder

Part of trade ne­go­ti­a­tions, at least be­tween and among democ­ra­cies, is post-agree­ment po­si­tion­ing. Usu­ally, a bal­ance is sought be­tween as­sur­ing con­stituen­cies that you weren’t fleeced and that you didn’t fleece in re­turn; the op­ti­mal take­away be­ing that all sides can claim a win. When ne­go­ti­at­ing with an Amer­i­can pres­i­dent who likes win­ning even when there’s no con­test, the con­cept of win­win-win takes on new pro­por­tions.

Don­ald Trump likes win­ning. More pre­cisely, he hates to lose. So much in fact, that if he hasn’t won, the game isn’t over. Since he be­came the pres­i­dent of the United States, the rul­ing class has rushed to read and re-read the Art of the Deal, hop­ing to use it as an owner’s man­ual of sorts—how to man­age this dis­rup­tive force that is the leader of the free world. While it is sim­plis­tic to wholly sub­scribe to the nar­ra­tive and strate­gies out­lined in that book, they are at the very least il­lus­tra­tive. Pres­i­dent Trump will not call the game un­til he has the most points on the board. Septem­ber 30, the United States took the board in the rene­go­ti­a­tion of NAFTA and the pres­i­dent both de­clared vic­tory and the birth of the United States-Mex­ico-Canada-Agree­ment (the USMCA).

Does the fi­nal agree­ment reached by all three coun­tries truly con­sti­tute a win-win-win?

In some cases, a win is avoid­ing a cat­a­strophic loss—which is, at least in part, what the Mex­i­cans and Cana­di­ans are pitch­ing to their re­spec­tive con­stituen­cies. Hav­ing the agree­ment in place is worth more than what was given up in the process. But that im­me­di­ate high of hav­ing come to an agree­ment is quickly be­com­ing a chal­lenge to main­tain. While both Mex­ico and Canada can count places where they gave up sig­nif­i­cant ground, it’s hard to find an area where the United States walked away worse off than when they ar­rived. Each coun­try had to bring an agree­ment back to their re­spec­tive elec­torates that would sym­bol­ize vic­tory for their do­mes­tic po­lit­i­cal equities. Mex­ico scored with the po­si­tion­ing that it was the part­ner that es­sen­tially made the deal pos­si­ble, first by agree­ing to an Auto Rules of Ori­gin chap­ter that sig­nif­i­cantly re­duces Mex­ico’s ad­van­tages for man­u­fac­tur­ing in­vest­ment and then by bring­ing Canada back to the ta­ble.

Canada scored by se­cur­ing an agree­ment in the wake of what was largely as­sumed to be a bi­lat­eral end-game with Mex­ico and main­tain­ing the dis­pute res­o­lu­tion mech­a­nism pre­vi­ously known as Chap­ter 19. The United States scored by se­cur­ing above all a more re­stric­tive rules of ori­gin regime for tex­tiles and au­tos, in­creased market ac­cess for agri­cul­tural prod­ucts, and greater pro­tec­tion for in­tel­lec­tual prop­erty.

What did each coun­try give up? The Mex­i­cans agreed to auto rules of ori­gin that will likely drive in­vest­ment north, and to more ro­bust labour stan­dards, in­clud­ing leg­is­lat­ing the abil­ity to bar­gain col­lec­tively. The Cana­di­ans gave the Amer­i­cans ac­cess to 3. 6 per cent of their dairy market and more sig­nif­i­cantly, agreed to the dis­so­lu­tion of class 7, a rel­a­tively re­cent cre­ation that was a sig­nif­i­cant ir­ri­tant in the bi­lat­eral re­la­tion­ship. In ad­di­tion, Canada agreed to higher stan­dards on in­tel­lec­tual prop­erty pro­tec­tions, and broader re­stric­tions on data lo­cal­iza­tion.

It is less clear what the United States gave up. They backed off on ag­gres­sive pro­pos­als for U.S. con­tent in the au­to­mo­bile rules of ori­gin, the sun­set clause, and gov­ern­ment pro­cure­ment. Peanut, peanut but­ter and su­gar tar­iff rate quo­tas (TRQs) were in­creased, al­low­ing Canada greater ac­cess into the U.S. market. The United States also ac­cepted more mod­er­ate in­creases in de min­imis lev­els, rather than push­ing for the other two part­ners to match the $800 U.S. rate on on­line im­port or­ders. And, notably, the United States al­lowed for the

While both Mex­ico and Canada can count places where they gave up sig­nif­i­cant ground, it’s hard to find an area where the United States walked away worse off than when they ar­rived.

con­tin­u­a­tion of a dis­pute res­o­lu­tion mech­a­nism that many within the Trump Ad­min­is­tra­tion con­sider to be an at­tack on U.S. sovereignty.

But then there are the side letters on the process for fu­ture Amer­i­can use of sec­tion 232 of the Trade Act of 1974. These are sig­nif­i­cant and a win for the United States at the ex­pense of the Cana­di­ans in par­tic­u­lar. Sec­tion 232 al­lows for the U.S. Pres­i­dent to uni­lat­er­ally as­sign tar­iffs on goods should the Depart­ment of Com­merce de­ter­mine that im­ports of that good are cre­at­ing a na­tional se­cu­rity threat. This is the same sec­tion of U.S. law that pro­vided Pres­i­dent Trump with the au­tho­riza­tion to im­ple­ment 25 per cent tar­iffs on steel and 10 per cent tar­iffs on alu­minum. Canada has, from the be­gin­ning, ar­gued that be­cause of the unique bi-na­tional na­ture of the North Amer­i­can Aero­space De­fense Com­mand, it is part of the Amer­i­can na­tional se­cu­rity es­tab­lish­ment, not a threat to it. The side letters on the process and TRQ for au­tos in the event of a 232 de­ci­sion on auto im­ports only en­shrine the U.S. ar­gu­ment that Canada (and Mex­ico) and their ex­ports have the po­ten­tial to be a se­cu­rity threat.

It is also worth not­ing that the steel and alu­minum tar­iffs re­main. While Min­is­ter Free­land and the USTR con­tinue to dis­cuss a path for­ward, even the po­lit­i­cal pres­sure of the re­tal­ia­tory mea­sures im­posed by Canada has not ap­peared to be suf­fi­cient to has­ten a con­clu­sion. Ken­tucky Gov­er­nor Matt Bevin, while call­ing the Cana­dian re­tal­ia­tory mea­sures a “cash grab” in an in­ter­view with CBC, also ac­knowl­edged that all tar­iffs are rev­enue pro­duc­ers.

The United States is hav­ing a rough time with its books in the Trump era. Tax cuts ac­com­pa­nied by in­creased spend­ing on bloated mil­i­tary and home­land se­cu­rity bud­gets have com­bined to run up the na­tional debt by 9 per cent (to $1.4 tril­lion de­spite eco­nomic growth rates that al­most dou­bled (from 2.2 per cent in 2017 to 4.2 per cent in 2018). The fed­eral cof­fers need funds and the tar­iffs are pro­vid­ing those funds read­ily—more so with ev­ery tranche of tar­iffs an­nounced. In other words, those 232 tar­iffs and the diplo­matic headaches they may have caused may be worth ev­ery penny for the U.S. This is the re­al­ity of the Trump era: free trade is no longer an as­pi­ra­tion. Man­aged trade is the fu­ture. Not only did the USMCA de­fine a frame­work for how the three part­ners will trade with each other, it also dic­tates, at least in part, how the part­ners en­gage in trade with the world. The North Amer­i­can in­te­grated sup­ply chain may ap­pear to have been saved, but it will have to ad­just to ab­sorb the im­pact of the changes in this agree­ment. In the end, there should be no doubt that Don­ald Trump won, but on the ques­tion of whether or not this was a win-win­win, the only an­swer may be the ar­gu­ment that no one can prove. Are we bet­ter off with it than we would have been with­out?

This is the re­al­ity of the Trump era: free trade is no longer an as­pi­ra­tion. Man­aged trade is the fu­ture. Not only did the USMCA de­fine a frame­work for how the three part­ners will trade with each other, it also dic­tates, at least in part, how the part­ners en­gage in trade with the world.

White House Photo

Pres­i­dent Don­ald J. Trump, joined by Cabi­net mem­bers, leg­is­la­tors and se­nior White House ad­vis­ers, an­nounces com­ple­tion of the United States-Mex­ico-Canada Agree­ment Oc­to­ber 1, 2018, dur­ing a press con­fer­ence in the Rose Gar­den of the White House.

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