Terry H. Schwadron
Oct. 3, 2018
President Trump was out in the sunshine on Monday trumpeting the last-minute deal with Canada, which essentially keeps a trade agreement in place among the United States, Mexico and Canada.
He used the agreement to preen — let’s recognize it as good news all around — and to boast that it wouldn’t have come about except for his own toughness, for his tariffs policy and for his stubbornness in insisting on things that look like progress.
The word from outside the White House also was positive — the stock market rocketed up for a day, for example — but a little more cautious in declaring a victory. The improvements in the new deal over NAFTA seem real, but measured, and, in some cases, the same as what already had been under discussion between the United States and Canada. In any case, it arises from the president’s own campaign to dump NAFTA in the first place; without the chaos, we might not be talking about a win now, even if the win is to eliminate the original problem.
Nevertheless, it is a White House win on trade, a subject matter of pet interest to Trump, over recalcitrant trade negotiators. The biggest win may well prove to be the PR gloss on the deal rather than the deal itself. We’ll be hearing about this victory repeatedly between now and November, 2020 as an only-with-Trump issue.
So, the media coverage focused early on the politics, which was a lot easier than crawling through all the small print. We got the idea generally that U.S. auto workers might win more job protections and auto parts import/export, that Canadians had caved a bit on dairy supports, and that the U.S. had conceded resolution of trade issues by an international body rather than U.S. courts only.
The Washington Post did look at the small print(The New York Times version is here) and found that much of the change is indeed incremental, allowing us to jump aboard. Remember, NAFTA already had directed the trade worth $1.2 trillion a year among the three nations, and getting this agreement signed assures that can continue — which is why the public markets reacted well. Much of it will start in a couple of years because the national legislatures in the three countries much approve it.
So, what should you know?
· It’s USMCAor United States-Mexico-Canada Agreement (not the Marine Corps) rather than NAFTA only because Trump dislikes the former name and its negative image, at least from his point of view. But it covers much of the same ground.
· Carsand truck manufacture were the biggest areas for change. The agreement increases the amount of North American manufacture of all car components from 62.5% to 75% in order to qualify for zero tariffs. At least a third of the work (40% by 2023) on cars and trucks be done by workers earning a minimum of $16 an hour, which is about three times the amount paid to Mexican workers. The agreement also is likely to raise the prices of new cars.
As the Post noted, “While many economists think these new rules will help some North American workers, they also warn that some small cars may no longer be made in North America because they would be too expensive under the new requirements. There are also concerns that automakers might not make as many cars in North America to export to China and elsewhere overseas because costs would be higher in the USMCA region than making the vehicles in Asia.” The Trump administration signed side letters that allow Canada and the United States mostly to evade auto tariffs, keeping complete car and truck import/exports at about the same level, despite what may happen with components.
· Dairy was closely watched because Trump makes unfairness to U.S. farmers a point at every political rally. Basically, Canada has tries to manage dairy markets to keep Canadian dairies in business, and charges a big tariff for U.S. milk after a certain quota. In the negotiations, Canada it is giving greater market share to U.S. dairy farmers, though keeping its dairy support system. U.S. dairies gained by being able to sell more milk concentrates, powder and infant formula to Canada. It’s a lot better than just spikk milk on the ground, which is what has been happening.
· Disputes. Canadian Prime Minister Justin Trudeau can claim a victory from the U.S. concession to keep in place an arrangement that allows Canada, Mexico and the United States to challenge one another’s anti-dumping and countervailing duties in front of a panel of representatives from each country, rather than challenging practices in a U.S. court.
· Steeltariffs remain for now at 25%, though negotiations continue. Trudeau has called the steel tariffs “insulting and unacceptable” because the two nations are such close allies.
· Improved labor and environmental rights. The agreement says that Mexican trucks that cross the border into the United States must meet higher safety regulations and that Mexican workers must have more ability to organize and form unions, clearly something on the agenda to appeal to U.S. union support.
· Increased intellectual property protections. The Post reported that the new protections chapter is 63 pages and contains more-stringent protections for patents and trademarks, including for biotech, financial services and even domain names that did not exist when NAFTA was born.
· Bankruptcy rules wereeliminated entirely for Canada and mostly for Mexico, and with it the practice of taxpayer support for business failures.
When you hear the boasts from Washington, it is useful to know whether there is a match between what they say and what they have achieved. My take: It’s an advance, but more incremental than breakthrough, and a relief that we have not bullied our way into stopping reliable trade with our biggest partners.