By Dave Smith, Senior Contributor, USDR.
“NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.” – Donald Trump
In what he called “the most advanced trade deal in the world”, President Donald Trump announced an agreement with Canada on a new trade deal to replace the 25-year old North American Free Trade Agreement (NAFTA); the US had already come to an agreement with Mexico in September. The agreement must now be ratified by Congress and by Mexico and Canada to take effect, and it solidifies a trade region of more than $1 trillion annually.
The reboot, now re-branded as the US-Mexico-Canada Agreement (USMCA) was met with approval by Wall Street, as the Dow Jones Industrial Average increased on news of the agreement. The American Petroleum Institute praised the deal, saying that Congressional approval of the deal is “critical for North American energy security and US consumers”; the API was joined by the US Chamber of Commerce, National Association of Manufacturers, and other industry groups in support for USMCA.
There is ample evidence that free trade agreements bring economic benefits and prosperity to the signatory nations. The Congressional Budget Office has studied the impact of US trade agreements, and contends that they have benefited the economy; as trade barriers have been removed, middle class median incomes have increased by 42% over the past four decades when indexed for inflation. A University of Chicago study showed that 96% of the economists it surveyed believe that NAFTA was good for the US economy, and studies by the Fraser Institute and the Heritage Foundation show that nations with fewer trade restrictions are more prosperous than their protectionist counterparts.
Changes to the previous deal in the USMCA are described largely as “mostly cosmetic”, but there are definitely some consequential provisions that will take effect, and not all of the feedback concerning the deal has been positive. Trade expert James Pethokoukis of the American Enterprise Institute called the new deal “the first free trade agreement negotiated by the United States that raises rather than lowers barriers to trade and investment”, singling out the new restrictive regulations on automakers as particularly costly and likely to reduce jobs in that sector. Daniel J. Ikenson of the Cato Institute notes that while the USMCA does remove some of the existent barriers on agricultural products and maintains the tariff-free status of most other goods, he maligns the missed opportunities for greater market expansion in the deal, particularly in the services and transportation sector. Jeffrey J. Schott of the Peterson Institute calls the new deal a “step backwards on trade and investment” and “intentionally designed to mismanage the auto sector”.
The USMCA does address some of the most loudly maligned aspects of the original NAFTA. For example, the famous Canadian dairy tariffs are reduced, opening Canada’s milk market to American dairy farmers. There are provisions for lumber, wheat, copyrights, energy, and dispute resolution; however, many of these items were already included in the Trans Pacific Partnership, which President Trump pulled the US out of and which was a heavy target of criticism by then-candidate Trump during the 2016 election. The TPP included not only Canada and Mexico but also Japan, Vietnam, Australia, New Zealand, Malaysia, Peru, Chile, and Brunei; together, these nations represent nearly 40% of the value of all goods and services produced globally.
Supporters of the President continue to maintain that Trump is actually a free trader, and that his blustering with regard to NAFTA and his tariff wars with China and other nations is simply a negotiation tactic. However, he has showed considerable protectionist tendencies, particularly in terms of the automobile sector – the trade deal with South Korea included a 20-year extension of auto tariffs on Korean vehicles, the new USMCA includes the aforementioned auto regulations, and Trump actually rejected an offer by the European Union to end all auto tariffs between the EU and the US.
While the Administration continues to work towards new deals, at least the collapse of NAFTA is no longer a threat. Unfortunately, the rebooted version is a step backward for free trade – it’s more like NAFTA 0.7 than version 2.0.
Born in the same county as Davy Crockett in East Tennessee, Dave found his way to Texas where he works in the petrochemical industry. He’s written and spoken about politics on various media outlets including Fox, ABC, and Townhall. He is a graduate of Tennessee Tech with a degree in chemical engineering. Follow Dave on Twitter: @semperlibertas.