Trump’s North American Trade Charade

US President Donald Trump’s goals in renegotiating the North American Free Trade Agreement were to reduce the current-account deficit and restore US manufacturing jobs. But the new United States-Mexico-Canada Agreement fails on both counts and will reduce US employment and weaken American producers’ position in international markets.

.. Meanwhile, US tariffs on imported steel and aluminum from Mexico and Canada remain in place.
.. Among other things, the USMCA will limit the number of vehicles that can be imported into the US, which effectively opens the door to managed trade. It is not yet clear how import quotas will be allocated; but almost any quota-allocation system will stifle competition and innovation by favoring incumbents over new market entrants.
.. Trump’s stated goals in renegotiating NAFTA – if “renegotiation” is the right word for when a bully attacks his smaller neighbors until they accede to his demands – were to reduce the bilateral US trade deficits with Canada and Mexico and “bring good jobs back home.” By those criteria, the new agreement is a spectacular failure. As any economist knows, a deficit in goods and services is a macroeconomic phenomenon reflecting a country’s domestic expenditures and savings. For the US to shrink its overall deficit, it must either reduce expenditures or increase savings. Nothing in the USMCA does that.

.. Moreover, the deal will probably destroy more US jobs than it creates. The new rules-of-origin (ROO) benchmark requiring that 75% of an imported vehicle be produced in North America (up from 62.5% under NAFTA) is likely to reduce employment by raising the costs of production.
.. In fact, automakers in Asia and Europe are probably ecstatic at the prospect of increased sales. They have gained an edge over North American producers in third countries, and perhaps even in the US market itself.
.. As for foreign-owned automakers operating in the US, they will almost certainly offshore any facilities that are producing inputs destined for foreign markets. This diversion, combined with the higher price of cars in the US, will further reduce overall US auto production, and thus auto-sector employment.
.. even if US parts producers were to expand production, they would be inclined to automate as much of it as possible, rather than hire more workers.

.. One of NAFTA’s major benefits was that it allowed for integrated supply chains across North America. US automakers gained access to labor-intensive parts at lower cost from Mexico, and Mexican producers gained access to less expensive capital-intensive parts from the US. As a result, the North American auto industry improved its competitive position internationally. The USMCA will not destroy NAFTA’s efficient supply chains, but it will raise their costs, thus undercutting that advantage.

.. in the long run, it will likely

  • reduce US employment,
  • shrink North America’s share of the global auto market, and
  • undermine America’s credibility on international trade issues –

all while failing to reduce the US current-account deficit.

.. other governments will now have to ask themselves why they should negotiate with a country that tears up settled agreements at will.

.. Even if forcing friends and allies to the negotiating table actually benefited US trade, it still would not be worth the loss of US soft power.

 

The New and Not Improved NAFTA

US President Donald Trump has called the United States-Mexico-Canada Agreement, which succeeds NAFTA, “the single greatest agreement ever signed.” In reality, it is not as good as the Trans-Pacific Partnership, from which Trump withdrew the US upon taking office, nor is it particularly better than the agreement it replaced.

Of course, this is Trump’s modus operandi: threaten to do something catastrophic, so people are relieved when things get only a little bit worse. That is what he did with North Korea, when he insulted its leader, Kim Jong-un, and threatened to rain down “fire and fury” on the country. Compared to nuclear conflict, his eventual meeting with Kim seemed like a triumph, even though it produced little actual progress.

.. Trump’s own mischaracterization of that meeting’s outcome – the problem of a nuclear-armed North Korea, he falsely asserted, had been “solved” – is another standard Trump tactic. He callsthe USMCA “the single greatest agreement ever signed.” For Trump, all NAFTA really needed was a new name – one that, as Eswar Prasad points out, literally puts “America First” – to enable him to pretend for his supporters that he achieved something positive.

..The first change is the introduction of two measures pertaining to the auto industry. The agreement requires that, to avoid tariffs, 75% of an automobile’s content originate within North America

.. This will bring some benefits to some American autoworkers, at the expense of everybody else. Not only will consumers face higher costs for autos; the disruption of existing efficient supply chains may even leave the US auto industry as a whole worse off, as it undermines the international competitiveness of North American output.

..The second prominent change in the USMCA is its agricultural concessions, particularly Canada’s agreement to give US producers access to up to 3.6% of its dairy market.

.. But this concession, the equivalent of 0.00003% of US total exports, will have no discernible impact on the US  balance. Trump cannot truthfully claim a victory relative to the status quo he inherited – even to his mercantilist supporters. In fact, Trump’s predecessor, Barack Obama, had managed to wrest similar dairy concessions from Canada in 2015 as part of the Trans-Pacific Partnership, from which Trump withdrew the US immediately upon taking office.

.. Overall, the TPP would have been  than the USMCA

.. in the USMCA negotiations, the US agreed to give Canada increased access to its own dairy market, as well as to two of its other most highly protected agricultural areas: peanuts (and processed peanut products) and sugar

.. The third feature of the USMCA that has drawn the most attention relates to dispute-settlement mechanisms.

.. The fourth notable change in the USMCA is the introduction of a sunset clause.

.. the USMCA must be renewed every 16 years. One hopes that future reviews will take place at times when more sensible leaders are in charge, and perhaps will eliminate the automatic sunset clause.

.. Ultimately, the rebranded NAFTA is a step in the direction of the TPP that Trump so reviled. It is not as good as the TPP, nor is it an overall improvement over NAFTA. But it is better than blowing up trade in North America.

Canada relieved trade deal done, won’t forget Trump attacks

“The most important gain from this agreement is retaining our access to the U.S. market and Canadians understand that,” Freeland said.
But there is a widely shared belief that Canada made concessions and the U.S. did not.
“The concessions were all from Canada and Mexico,” MacKay said. “All of them. The only thing that the United States gave up was more demands.”

.. Roland Paris, a former foreign policy adviser to Trudeau, expressed relief that the deal is done but worried about the long-term relationship between the two countries.
“Canadians won’t forget Trump’s disgraceful treatment of Canada. Our economic partnership has been reaffirmed, but trust can’t be rebuilt with the stroke of a pen,” Paris tweeted.

.. Canada could have lost 60,000 jobs in a trade war and taken a 1 percentage percent hit to its GDP — a significant drop because Canada’s economy is projected to grow just 2 percent next year

.. Ontario’s auto industry faced the biggest threat, but the sector welcomed the new agreement. The deal requires that 40 to 45 percent of a car’s content be built where workers earn $16 an hour. That is meant to bring production back to the United States or Canada and away from Mexico, where auto workers earn on average just $4 to $5 an hour.

.. The agreement also potentially restricts Canada and Mexico from reaching a free trade agreement with China and other “non-market” countries. If Canada or Mexico signed a deal with China, the U.S. could terminate its trade agreement with Canada or Mexico on a six-month notice. That may pose a problem for Canada which is eager to diversify its trade.

“It’s bizarre,” Charest, the former Quebec premier, said. “I have never seen anything like that in a trade agreement.”
Daniel Ujczo, a trade attorney with the Dickinson Wright law firm, said Canada and Mexico also must give the U.S. notice before starting those trade discussions and updates of all proposals made during the negotiations.

“The clause achieves a key policy imperative for the US; namely, shutting China’s backdoor to North America through Canada and Mexico,” Ujczo said. “Japan and Europe, as well as the rest of the world, should be on notice that this may be the price of admission to a trade deal with the U.S.”

.. “I am a Canadian. I am polite and respectful. Even when I’m dealing with a hard business issue I don’t belittle people, I don’t insult them,” Rosen said. “As a Canadian, the whole approach that has been taken (by the U.S.) has been offensive and I don’t think Canadians will forget it.”

.. Trump’s mistreatment reinforces a worry among Canadians that their much larger neighbor is taking advantage of Canada, Heyman added.
Bothwell, the University of Toronto professor, warned of lingering damage to relations.
Trump treated it like a real estate deal when he was a shyster in Atlantic City,” Bothwell said.
“But this is nation to nation. And that’s different. And it’s connected to other things,” he added. “Trump really doesn’t grasp that and doesn’t care.”

Jim Mattis Compared Trump to ‘Fifth or Sixth Grader,’ Bob Woodward Says in Book

President Trump so alarmed his defense secretary, Jim Mattis, during a discussion last January of the nuclear standoff with North Korea that an exasperated Mr. Mattis told colleagues “the president acted like — and had the understanding of — a ‘fifth or sixth grader.’”

At another moment, Mr. Trump’s aides became so worried about his judgment that Gary D. Cohn, then the chief economic adviser, took a letter from the president’s Oval Office desk authorizing the withdrawal of the United States from a trade agreement with South Korea. Mr. Trump, who had planned to sign the letter, never realized it was missing.

.. book by Bob Woodward that depicts the Trump White House as a byzantine, treacherous, often out-of-control operation — “crazytown,” in the words of the chief of staff, John F. Kelly — hostage to the whims of an impulsive, ill-informed and undisciplined president.

.. The White House, in a statement, dismissed “Fear” as “nothing more than fabricated stories, many by former disgruntled employees, told to make the president look bad.”

.. Mr. Woodward portrays Mr. Mattis as frequently derisive of the commander in chief, rattled by his judgment, and willing to slow-walk orders from him that he viewed as reckless.

.. Mr. Trump questioned Mr. Mattis about why the United States keeps a military presence on the Korean Peninsula. “We’re doing this in order to prevent World War III,” Mr. Mattis responded, according to Mr. Woodward.

.. In April 2017, after President Bashar al-Assad of Syria launched a chemical attack on his own people, Mr. Trump called Mr. Mattis and told him that he wanted the United States to assassinate Mr. Assad. “Let’s go in,” the president said, adding a string of expletives.

The defense secretary hung up and told one of his aides: “We’re not going to do any of that. We’re going to be much more measured.” At his direction, the Pentagon prepared options for an airstrike on Syrian military positions, which Mr. Trump later ordered.

.. another layer to a recurring theme in the Trump White House: frustrated aides who sometimes resort to extraordinary measures to thwart the president’s decisions — a phenomenon the author describes as “an administrative coup d’état.” In addition to Mr. Mattis and Mr. Cohn, he recounts the tribulations of Mr. Kelly and his predecessor, Reince Priebus, whose tensions with Mr. Trump have been reported elsewhere.

.. Mr. Cohn, Mr. Woodward said, told a colleague he had removed the letter about the Korea free trade agreement to protect national security. Later, when the president ordered a similar letter authorizing the departure of the United States from the North American Free Trade Agreement, Mr. Cohn and other aides plotted how to prevent him from going ahead with a move they feared would be deeply destabilizing.

.. Last January, Mr. Woodward writes, Mr. Dowd staged a practice session in the White House residence to dramatize the pressures Mr. Trump would face in a session with Mr. Mueller. The president stumbled repeatedly, contradicting himself and lying, before he exploded in anger.

.. Mr. Woodward told Mr. Trump he interviewed many White House officials outside their offices, and gathered extensive documentation. “It’s a tough look at the world and the administration and you,” he told Mr. Trump.

“Right,” the president replied. “Well, I assume that means it’s going to be a negative book.”