President Trump’s Mexican Standoff

His approach to Peña Nieto suggests this is one adversary he fails to understand.

.. His strategy has been to soften up the opponent with verbal abuse and extreme threats, including the possibility of tearing up Nafta altogether.
.. “The president-elect has done a wonderful job of preconditioning other countries [with] whom we will be negotiating that change is coming,” Commerce Secretary-designate Wilbur Ross gloated during his Senate confirmation hearing. “The peso didn’t go down 35% by accident. Even the Canadian dollar has gotten somewhat weaker—also not an accident. He has done some of the work that we need to do in order to get better trade deals.”
.. Maybe Mr. Trump should have Googled the Treaty of Guadalupe Hidalgo. Mexicans are still smarting over that one.
.. The White House responded by saying it would extract the money for the wall with a 20% tariff on Mexican exports to the U.S. Of course American consumers would be the ones paying. But in any case it would be the end of Nafta.Americans have to hope their new president is not that reckless.

.. “sales of food and farm products to Mexico totaled a record $19.5 billion in fiscal year 2014.” That was 13% of U.S. agricultural exports.

.. Mr. Trump says that the U.S. has been outfoxed in manufacturing because American companies now make things in Mexico. But imports from Mexico contain significant American content, and production-sharing across the continent has given U.S. companies an edge in the global market.

.. But it is being debated whether that would repeal the congressional legislation that put it into effect. If so, tariffs would revert to pre-Nafta levels, which implies using the World Trade Organization tariff schedule. American exporters to Mexico would face greater tariff hikes than Mexican exporters to the U.S., because Mexico accepted much greater tariff reductions under Nafta than the U.S. did.

.. Mr. Trump might try to invoke the International Economic Emergency Powers Act of 1977 to slap his oft-promised punitive tariff on Mexican imports. But it is hard to argue that national security is being threatened.

.. The 45th president has said he wants to craft new bilateral trade agreements. Mexico says it is not interested. It has learned a hard lesson about relying on an unreliable partner, and its aim now is to diversify its trade portfolio. Policy makers are said to be exploring new agreements in the region with countries eager to replace U.S. agricultural suppliers.

Donald Trump Poised to Put Pressure on Nafta

While an abrupt withdrawal from the trade deal is unlikely, the president-elect and his advisers are gunning for big changes

His team may also seek to remove a Nafta provision that allows Mexican and Canadian companies to challenge U.S. regulations outside the court system.
.. Breaking up Nafta would upend numerous industries, and the biggest victim would be Mexico, which promotes itself as a platform offering global manufacturers duty-free access to the U.S.
.. Reopening the treaty would create “a long line” of special interests in all three countries trying to get protection, he added.
.. If the U.S. leaves Nafta, then the two-decade-old agreement could be replaced with bilateral trade agreements, which Trump advisers say they prefer to multilateral tie-ups.

Nafta May Have Saved Many Autoworkers’ Jobs

But the autoworkers’ animosity is aiming at the wrong target. There are still more than 800,000 jobs in the American auto sector. And there is a good case to be made that without Nafta, there might not be much left of Detroit at all.

.. “Without the ability to move lower-wage jobs to Mexico we would have lost the whole industry,” said Gordon Hanson of the University of California, San Diego, who has been studying the impact of Nafta on industries and workers since its inception more than two decades ago.

.. The industry lost 350,000 jobs, or about a third of its workers, over the period.

..The surge of Mexican exports in the 1990s was propelled by a sharp devaluation of the peso, which set off the so-called Tequila Crisis. The wave of immigration from Mexico into the United States, which lasted until 2005, was driven by a decline in government subsidies to farmers and an economic collapse that occurred just as millions of young Mexicans were entering their late teens and were desperate for jobs.

.. The truth is that autoworkers in Detroit were not just competing with cheap workers in Mexico. They were also competing with American workers in the union-averse South, where many car companies set up shop. They were competing with robots and more efficient Japanese and Korean automakers.

.. The Honda CR-V assembled in El Salto, Jalisco, for example, uses an American-made motor and transmission. Roughly 70 percent of its content is either American or Canadian, according to government statistics.

.. And if the real concern is China — another target of Mr. Trump’s ire — a truly integrated North American market would help keep it at bay.

..“It’s exactly the wrong time to blow up Nafta,” Professor Hanson argued. “We would be doing China an enormous favor.”