Should we keep pretending there will be a new NAFTA?
Negotiators from Canada, Mexico and the United States very busily worked through a rapid succession of negotiating rounds last week to draft a new North American Free Trade Agreement. Press reports and official statements claim progress has been achieved regarding certain elements of the agreement and that negotiators are hopeful they’ll reach agreement on numerous remaining issues. Industry and civil-society groups in all three countries are diligently lobbying their governments to ensure that negotiating positions and agreed provisions adequately further their interests.
Notwithstanding the earnestness of the participants, these negotiations are pure fantasy.
Remember that the only reason we’re involved in a NAFTA renegotiation in the first place is that Donald Trump promised during his election campaign to “fix” or leave NAFTA, which he incredulously blamed for the destruction of America’s thriving manufacturing sector. Trump does not want—and has never expressed any interest in—a modern trade agreement that promotes U.S. commercial interests in the 21st century. That’s what the TPP was forThe NAFTA renegotiation is best understood as a stalling tactic to keep Trump from withdrawing out of spite or boredom. It’s pretty easy to do, because all the players who worked on the TPP over the last few years can just shift to applying their energy toward the NAFTA 2.0 project. The only real impediment to continuing with this charade is the Trump administration itself.
It’s become increasingly clear that the Office of the U.S. Trade Representative is intent on pushing numerous “poison pills” in the NAFTA talks. These are proposals that are politically impossible, not just in Canada and Mexico, but also in the United States. For example, U.S. negotiators are proposing rules of origin for automobiles that require 50 percent U.S. content, in addition to 80 percent NAFTA content. The consequence of such a provision would be the end of NAFTA for the auto trade. U.S. automakers would just pay the tariff, since that would be less expensive than contorting their supply chains to match uneconomical sourcing requirements.
They also plan to propose a sunset provision that would require Congress to re-enact NAFTA every five years. Trade votes require a lot of political capital and delicate timing—no one in Congress wants to commit themselves to doing that over and over again. Plus, the whole point of trade agreements is to shield future trade relations from political forces. Businesses thrive on predictability, and the possibility of tariff hikes in less than five years would eliminate most of the agreement’s commercial value.
What we’re seeing from the administration is not just the bad economics of Trump’s campaign, but bad politics. Their approach to the NAFTA renegotiation, which includes outlandish proposals to eliminate the agreement’s existing benefits and occasional threats from Trump to withdraw on a whim, has attracted strong condemnation from the U.S. Chamber of Commerce As the Chamber’s John Murphy noted to The New York Times, the administration’s most difficult proposals have “no identifiable constituency backing them.”
This political malpractice is what most separates Trump’s trade position from past administrations. Mercantilist rhetoric from politicians is nothing new. But for most politicians, that rhetoric is a tool used to disguise interest-driven positions. Openly admitting that you just want the support of a local industry or interest group is déclassé, so you pretend it’s good for the country.
Trump, however, really believes that the goal of trade policy is to secure bilateral, product-specific trade surpluses with everyone. He wants to accomplish this with tariffs. Even if no businesses in the United States actually ask for them.
In short, the Trump administration lacks both the will and the competence to negotiate a free trade agreement with Canada and Mexico that adequately promotes the interests of U.S. businesses, whose support is vital to shepherding the agreement through Congress. There is a real “U.S. trade policy,” but it is not what Trump or USTR is pushing.
The main goal of free trade advocates in the current environment should be preservation of the status quo. For now, the best course may indeed be to pretend to participate in the Potemkin renegotiation of NAFTA—and sincerely hope it lasts for at least three more years.
