Trump gets his new NAFTA
Hyou can say for President Trump’s biggest trade pact so far: The new version of the U.S.-Mexico-Canada Agreement is better than the one Trump originally negotiated a year ago. House Democrats and the Trump administration announced a number of changes Tuesday that will make the agreement more enforceable, likely assuring its passage through Congress.
Once approved, the agreement will replace the 25-year-old North American Free Trade Agreement, a landmark deal that aimed to boost growth by leveling barriers to trade within the continent. And while NAFTA did that, more than tripling trade among the countries, its benefits in the United States were offset in part by the movement of thousands of manufacturing jobs to Mexico and some wage stagnation (although the blame for that may rest with globalization in general).
In other words, NAFTA was overdue for an update that would hold Mexico to higher standards while also acknowledging the rise in online commerce. The original deal Trump struck does those things, and the changes negotiated with Democrats improves on them. The biggest downside of the latest version is that the two sides didn’t change one major provision that pushed the new deal away from the free-trade ambitions of its predecessor, and toward a costlier effort to manage trade on the continent.
That’s not a huge surprise, considering that free traders were largely absent from the negotiations between House Democrats and the Trump administration. Trump had proclaimed NAFTA a disaster that cost many Americans their jobs, and labor-aligned Democrats had opposed that pact from the start.
The mere fact that the Trump administration was able to strike a deal with the House Democratic leadership in the middle of the Democrats’ efforts to impeach the president is proof of Washington’s ability to compartmentalize. And both sides had a clear incentive to get a deal done: Trump had promised during the 2016 campaign to end NAFTA as we know it, and House Democrats have come under withering fire from Republicans for allegedly focusing on impeachment to the exclusion of any other work. Although that wasn’t true — later this week, for example, the House is expected to pass a major bill to lower prescription drug costs and expand Medicare benefits — the new trade deal offered the chance to produce something tangible that wasn’t likely to die in the Senate.
Still, some liberal groups argued against striking any deal with Trump because it would help him politically without delivering the improvements to labor and environmental protections that they coveted. But that’s ridiculous, given that the alternative Trump has threatened — credibly, given his dislike of multilateral agreements — is no trade deal at all.
One of the main wins for the United States in the trade deals it struck is the pressure they place on our trading partners to raise their wages, working conditions, labor organizing rights, emissions regulations and other commercial and industrial standards closer to U.S. levels. There’s no question that the revised version of the U.S.-Mexico-Canada pact does a better job ensuring that those higher standards will be met than the original version did. That’s to the Democrats’ credit, as is the elimination of a provision that would have expanded patent protection for new biologic drugs.
On the other hand, the new version would still impose significantly tougher requirements on all automotive manufacturers in the region, requiring 70% of the steel and aluminum and 75% of the parts to be made in North America in order to avoid tariffs. The mandate will cost consumers, automotive industry workers or both because it disrupts the global supply chains that even domestic manufacturers rely on to make their products more competitive, and it imposes inefficiencies that automakers may seek to avoid simply by moving car production elsewhere.
Happily, most of the provisions in the new agreement are copied either from the 1994 NAFTA deal or from the Trans-Pacific Partnership that Trump renounced after taking office, so on balance it should promote trade rather than hindering it. And clearly, the new version is better than Trump returning us to the pre-NAFTA status quo.