Don’t terminate NAFTA. Focus on China instead.
When the United States, Canada and Mexico began talks this month to rewrite NAFTA, the Trump administration was full of its usual bluster.
U.S. trade representative Robert Lighthizer lectured his counterparts in public. In private, he demanded that a substantial, though unspecified, percentage of the North American auto industry be based in the USA.
There’s virtually no chance that Canada and Mexico will accept such terms. President Trump admitted as much at a rally Tuesday in Phoenix when he said: “I don’t think we can make a deal because we have been so badly taken advantage of … so I think we’ll end up probably terminating NAFTA at some point.”
Pulling out of NAFTA would be a grave mistake. It would punish the many innovative U.S. companies and farm interests that have thrived under the 23-year-old free trade agreement. And it would make U.S. industry less competitive.
Gauging the impact of NAFTA is difficult, though it is probably safe to say it has produced losers as well as winners. The United States has a $36 billion trade deficit with Mexico so far this year. That’s a big number. But America is running similar deficits with Germany, Japan and even Ireland, and they’re not party to any trade agreements with the United
States. America is running a whopping $171 billion deficit with China, and it also has no deal with the USA.
The much-maligned pact, supported by presidents of both parties, could use some updates to deal with money laundering and the rise of digital industries. But Trump has shown little interest in making these types of improvements to a trade deal that has, on balance, benefited this country.
Moreover, Trump’s fixation with NAFTA has already distracted attention from more pressing trade issues. Take China, for instance.
Companies owned entirely or in part by the Chinese government receive preferential treatment at home and use their domestic profits to expand abroad. China also largely ignores the theft of intellectual property — everything from the pirating of CDs to sophisticated computer hacking campaigns to acquire corporate intelligence.
But perhaps the most alarming Chinese practice is one that requires foreign companies to partner with local firms and furnish them with vital technologies. U.S. companies ranging from Microsoft to GM have agreed to these terms in return for getting access to the world’s second largest economy. By turning over trade secrets, they sow the seeds for their own demise, as today’s partners are likely to emerge as tomorrow’s competitors.
Trump is well aware of these Chinese practices. He recently signed a memo likely to trigger an investigation that will play out over the next year or longer. By contrast, he made Mexico-bashing part of his campaign and once in office moved quickly on his anti-NAFTA crusade.
Trump has already abandoned one trade agreement — the Trans-Pacific Partnership, which excludes China — that would have benefited the United States. Tearing up NAFTA would be another great leap backward.