NAFTA is dead — long live NAFTA
On Monday, President Donald Trump announced the end of NAFTA, the trade agreement he’s repeatedly called a “disaster” for U.S. workers, and hailed its successor, the United States-Mexico-Canada Agreement as the greatest trade deal ever seen.
As you might therefore expect, the new agreement is just a lightly tweaked version of the old. Despite the president’s theatrics, NAFTA lives on.
That’s good — because, far from being a disaster, free trade across North America serves the interests of all three countries. But Trump’s USMCA has a downside. It was achieved only after months of needless economic uncertainty and the trashing of America’s reputation as a reliable partner.
One main change is new rules on cars. To qualify for tariff-free access, 75 percent of the content of imports must be produced within North America, up from 62.5 percent under NAFTA; in addition, 40 percent of the content must be attributable to workers making at least $16 an hour. Neither point will have much effect on prevailing patterns of trade.
The administration had previously made much of NAFTA’s dispute-settlement procedures, complaining that they infringe U.S. sovereignty and put U.S. companies at a disadvantage. One of the three methods, the so-called Chapter 11 investor-state dispute settlement system, will be scaled back, but the other two will be essentially unchanged.
The new deal includes rules to prevent countries from deliberately weakening their currencies in order to gain a trade advantage. Fine — but the U.S., Canada and Mexico haven’t done that, so it makes no difference. Protection for intellectual property will be improved — adopting measures from the Trans-Pacific Partnership, which Trump denounced and abandoned on his first day in office. And Canada has agreed to a modest liberalization of its bizarre system of dairy quotas and prices — so some U.S. farmers will sell more milk.
Going into the talks, the U.S. had called for a sunset clause requiring the deal to lapse after five years unless renewed. USMCA includes a 16-year sunset, with reviews every six years that can reset the clock. In effect, under USMCA, the sun need never set — just as with NAFTA.
Some of the tweaks in USMCA are good, some not so good, but the new pact mostly affirms the existing arrangements. Given the current cease-fire in Trump’s trade war with Europe, the administration’s trade complaints will focus more exclusively on China. (It’s notable that USMCA gestures in that direction, by barring members from negotiating trade deals with so-called non-market economies.) A worsening breakdown in U.S.-China relations now poses the biggest threat to global prosperity.
In coming to terms with China on trade and other issues, the U.S. will need the support of its allies, so it’s good that Trump has backed away from his trade fights with Mexico, Canada and Europe. But his aggressive and unruly posturing has done great harm nonetheless. The president has sent the message that he disdains alliances, sees the world in zero-sum terms, and cannot be trusted. The main result of his sound and fury over NAFTA is diminished U.S. sway in the world.