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Archive for August 28th, 2018

Remember the big debate about whether Trump was a closet free trader or a crude protectionist?

Some people claimed he was imposing tariffs and threatening other nations in order to get them to reduce trade barriers.

From the beginning, I was skeptical of this argument, but also acknowledged that we wouldn’t know for sure until we saw a Trump-negotiated deal.

Well, I point out in this interview that my skepticism was warranted. Trump unveiled a quasi-deal on NAFTA yesterday, and it unquestionably will reduce economic liberty.

There’s a lot we still don’t know. Especially about whether this new agreement will actually get approved.

But Claude Barfield of the American Enterprise Institute has a very succinct explanation of the good and bad. He agree with me that it’s good to remove uncertainty.

(1) The best thing about the agreement — if it holds — is that it will remove the extreme uncertainty for businesses in all three NAFTA economies.

And I’m guessing he also agrees that a weakened NAFTA is better than no NAFTA.

By the way, Administration officials have told me that there are a few good provisions, involving matters such as digital goods and property rights.

But Barfield’s list of bad provisions easily trumps (no pun intended) any positive changes.

(2) The tentative “rules of origin” provisions for autos are an abomination — so complex and anti-competitive that they invite endless litigation and corruption (rules of origin govern what percentage of a final product must come from the three NAFTA nations).

(3) The old NAFTA dispute settlement system for investors has been gutted, leaving US industry and Congress with a huge dilemma as to whether to support the new pact.

(4) The auto/labor provisions (forcing Mexico to pay workers $16/hour for a number of jobs in Mexican auto plants, or four times the average hourly pay in Mexico) is a terrible precedent for mandating changes in domestic policy through a trade agreement.

Point #4 is especially terrible. It basically seeks to set wage levels above productivity levels in Mexico, which is a recipe for more unemployment in that already shaky economy (by the way, someone should tell Trump this will lead to more illegal migration from Mexico to the U.S.).

This is the same theory that the French and Germans use when trying to undermine tax competition. It’s supposedly unfair, they argue, when other countries have lower tax rates.

The bottom line is that Trump is hurting America. NAFTA has been good news for the United States, producing more jobs, more exports, and higher living standards.

When grading Trump’s overall economic policy, we just got a big chunk of bad policy to offset some of the good policy.

Sad!

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