New trade deal fa­vors unions, may hurt au­tomak­ers

The Star Democrat - - OPINION -

Pub­licly, la­bor unions are say­ing they are cau­tiously op­ti­mistic about the new tri­lat­eral trade deal Pres­i­dent Don­ald Trump ne­go­ti­ated with Mex­ico and Canada. Pri­vately, they ought to be do­ing back­flips. It’s not so clear how the Detroit au­tomak­ers will fare.

The deal that would re­place the North Amer­i­can Free Trade Agree­ment fixes much of what unions hated about the old pact, while mak­ing it harder for busi­nesses to ex­ploit cheaper for­eign la­bor to lower costs and raise prof­its.

For the au­to­mo­bile in­dus­try specif­i­cally, the United States-Mex­ico-Canada Agree­ment is likely to raise pro­duc­tion costs thanks to tougher con­tent and wage man­dates, and ul­ti­mately could make it even more dif­fi­cult to build small cars in the U.S.

The sub-com­pact ve­hi­cles built in Mex­ico and sold in the U.S. might not be as easy to im­port duty-free, so Amer­i­can con­sumers will pay more for those fuel-ef­fi­cient ve­hi­cles and may face a smaller se­lec­tion. That could neg­a­tively im­pact sales, par­tic­u­larly in a cheap gaso­line era.

In ad­di­tion, for the mo­ment, the pact leaves in place the 15-per­cent tar­iffs on the Cana­dian steel that U.S. au­tomak­ers and other man­u­fac­tur­ers rely on. That, too, drives up the price of fin­ished ve­hi­cles.

So what do the unions, who hated NAFTA, get from USMCA? A lot.

For the first time, a trade agree­ment be­tween the three coun­tries man­dates a min­i­mum wage of sorts. At least 30 per­cent of cars must be made by workers paid at least $16 an hour. The thresh­old rises to 40 per­cent in 2023.

The wage is roughly three times the aver­age man­u­fac­tur­ing pay in Mex­ico. It’s hard to imag­ine man­u­fac­tur­ers in Mex­ico and low-cost Asian coun­tries will triple wages for workers pro­duc­ing parts and ve­hi­cles. So more work will move into or re­main in the United States and Canada.

Of course, the man­date could be a curse in dis­guise for unions if it en­cour­ages more au­to­ma­tion as a means of keep­ing la­bor costs in check.

The deal im­poses stricter en­vi­ron­men­tal and safety re­stric­tions on Mex­i­can trucks trans­port­ing goods across the bor­der, some­thing that has long been on the wish list of the Team­sters union. It also re­quires that Mex­ico give its workers greater abil­ity to form and join unions.

There are some other win­ners in the deal. Canada is happy be­cause it would leave much of its com­plex dairy pro­tec­tions in place, though U.S. farm­ers will gain some ad­di­tional ac­cess to Cana­dian con­sumers.

Canada and Mex­ico would be spared from the ad­di­tional steep tar­iffs Trump is threat­en­ing on im­ported au­to­mo­biles and parts.

There are stronger pro­tec­tions for in­tel­lec­tual prop­erty rights. Canada scored a vic­tory in keep­ing the con­flict res­o­lu­tion process largely in­tact.

Per­haps the best part of the deal is that an agree­ment was reached at all. When Pres­i­dent Don­ald Trump blew up NAFTA, his ad­min­is­tra­tion didn’t have much of a plan for re­plac­ing it, and ne­go­ti­a­tions be­tween the three coun­tries started out con­tentious.

The deal still must be ap­proved by Congress and won’t go into ef­fect un­til 2020, and while well shy of per­fect, it is bet­ter than a trade war be­tween these three in­ter­de­pen­dent economies.

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