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.

 

Thomas Friedman: Everyone Is Going All the Way

It is hard to spend a week in Israel and not come away feeling that Israelis have the wind at their backs.

  • They’ve built an awesome high-tech industry
  • Regionally, the Arabs and Palestinians have never been weaker
  • Israel has never had a more unquestioningly friendly United States.
  • Trump recognized Jerusalem as Israel’s capital, asking Israel for nothing in return. The Arab states barely made a peep.

this wind has whetted the appetite of Israel’s settlers and ruling Likud Party to go to extremes

.. the “Likud Party unanimously urged legislators in a nonbinding resolution … to effectively annex Israeli settlements in the occupied West Bank, land that Palestinians want for a future state.”

.. Sure, the world would scream “apartheid,” but Israeli rightists shrug that the world will get used to it.

  • Nikki Haley will cover for Israel at the U.N.
  • Sheldon Adelson will keep Trump and the G.O.P. in line.
  • And the Arab regimes, which need Israel to counter Iran, will look the other away.

They think they can annex the West Bank without giving Palestinians citizenship; they’ll just let the Palestinians vote in their own elections.

.. May 17, 1983  .. Israel (backed by the U.S.) imposed virtually all its security demands on a weak Lebanese government, including a framework for normalizing trade and diplomacy.

.. “Going All The Way: Christian Warlords, Israeli Adventurers and the War in Lebanon.”

I always loved that title — going all the way. It’s a recurring theme out here, and it almost always ends with a “Thelma and Louise” moment — partners driving over a cliff — and so it did with Israel in 1983.

.. everywhere I look today I see people going all the way.

  • I see Republicans trashing two of our most sacred institutions — the F.B.I. and the Justice Department — because these agencies won’t bend to Trump’s will.
  • I see Iran controlling four Arab capitals: Damascus, Sana, Baghdad and Beirut.
  • I see Hamas still more interested in building tunnels in Gaza to kill Israelis than schools to strengthen Palestinian society.
  • I see the crown prince of Saudi Arabia with one hand undertaking hugely important steps —
    • moderating Saudi Islam,
    • letting women drive and
    • opening Saudi society culturally to the world
  • and, with the other hand,
    • abducting the prime minister of Lebanon,
    • buying ridiculously expensive paintings and
    • seizing businesses in the name of combating corruption
  • I see the Taliban killing 103 people in Kabul by packing an ambulancewith explosives and driving it into a crowd.
  • I see Houthis, Yemeni warlords, Iranians, Saudis and the U.A.E. all tearing Yemen apart in the name of God knows what.

  • I see Turkey’s president silencing every critical journalist in his country.

  • I see the Egyptian and Russian presidents eliminating all serious rivals in their upcoming elections.

  • I see Bibi Netanyahu trying to derail a corruption investigation by weakening Israel’s justice system, free media and civil society — just like Trump and for the same purposes: to weaken constraints on his arbitrary use of political power.

  • I see an American president threatening to tear up, or actually tearing up, global agreements he doesn’t like —

    • the Iran nuclear deal,

    • Nafta,

    • the Trans-Pacific Partnership,

    • the Paris climate accord and

    • aid to Palestinians and Pakistanis —

  • but without any clear plan or alternative for the morning after that will improve on the status quo.

  • Worst of all, I see an America — the world’s strongest guardian of truth, science and democratic norms — now led by a serial liar and norms destroyer, giving license to everyone else to ask, why can’t I?

Can anything stop this epidemic of going all the way? Yes: Mother Nature, human nature and markets. They’ll all push back when no one else will.

.. How so?

Gaza has limited hours of electricity each day.

Result: Gaza’s already inadequate sewage plants are often offline, and waste goes untreated straight into the Mediterranean.

Then the prevailing current washes Gaza’s poop north, where it clogs Israel’s big desalination plant in Ashkelon — which provides 15 percent of Israel’s drinking water

.. In both 2016 and 2017, the Ashkelon plant had to close to clean Gaza’s crud out of its filters. It’s Mother Nature’s way of reminding both that if they try to go all the way, if they shun a healthy interdependence, she’ll poison them both.

.. then out of nowhere Iranians back home start protesting against Suleimani’s overreach; they’re tired of seeing their money spent on Gaza and Syria — not on Iranians. And, just as suddenly, the biggest internet meme in Iran becomes an Iranian woman ripping off her veil and holding it upon the end of a stick.

.. And if you don’t think markets have a way of curing excesses, you didn’t read the top story in The Times.

.. Watch out for

  1. the market,
  2. Mother Nature and
  3. human nature.

.. One is the relentless product of chemistry, biology and physics; one is the balance between greed and fear; and the third is the eternal human quest for freedom and dignity. In the end, they’ll shape the future more than any leader or party who tries going all the way.