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Posts Tagged ‘North American Free Trade Agreement’

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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There’s a debate in Washington about what President Trump really thinks about trade. Is he a crude protectionist or closet free trader?

If we focus on actions rather than rhetoric, I fear Trump is in the anti-trade camp. That is certainly the case if we look at how the Administration wants to alter the North American Free Trade Agreement. I was interviewed yesterday and here’s what I said about Trump and NAFTA.

By the way, even though I’ve previously defended NAFTA, I would like to see changes to the deal. The pact, which drags on for 1700 pages, isn’t genuine free trade.

An ideal agreement would contain just one sentence: “Mexicans and Canadians are free to buy goods and services from Americans, and Americans are free to buy goods and services from Mexicans and Canadians.”

Unfortunately, the Trump Administration wants to modify NAFTA in the other direction.

Clark Packard of the R Street Institute discusses this problem in a column for National Review.

…the administration should resolve NAFTA quickly. But a toxic mix of political miscalculations and bad policy is threatening to push that goal out of reach. U.S. Trade Representative Robert Lighthizer wants to remove the investor–state dispute-settlement process (ISDS) from NAFTA 2.0. ISDS provides neutral arbitration to settle disputes between private investors and governmental parties to NAFTA. For example, if the Mexican government expropriated an oil field owned by an American firm, ISDS would permit the American firm to seek compensation from the Mexican government in an arbitration process rather than seek redress in a Mexican court. …removing the process from NAFTA 2.0 would be a political miscalculation. …Another troublesome demand the United States is making in NAFTA negotiations is the inclusion of a so-called sunset clause that would terminate the agreement after five years unless all three countries affirmatively renew it. This is an unpopular idea on Capitol Hill and is a non-starter for Mexico and Canada, with good reason. Investment thrives in predictable environments. …the United States suggested lowering the regional-content threshold to 70 percent and requiring that 40 to 45 percent of an automobile must be produced by autoworkers making at least $16 per hour. …If manufacturers complied with this proposed requirement, their costs would skyrocket and consumers would face higher prices at the dealership. …manufacturers would forgo duty-free trading under NAFTA by sourcing parts from non-NAFTA countries and paying wages below $16 an hour, and then simply paying the small U.S. tariff on automobiles.

And here’s a good explanation, from Gary Clyde Hufbauer, of why NAFTA is a big plus for the American economy.

The North American Free Trade Agreement (NAFTA) has benefited American consumers, workers and businesses since 1994. …Some 14 million US jobs depend on the agreement with our nation’s two largest export markets, Canada and Mexico. Together, these countries spend nearly $500 billion purchasing US exports annually. …The Peterson Institute’s research shows that overseas investment is an engine for American job creation. For example, case studies in Mexico show a win-win relationship from establishing research and development facilities outside the United States: Every 131 jobs added in Mexico lead to 333 jobs created here at home. …NAFTA has fostered robust growth in agricultural exports over the past 24 years.

The bottom line, as I’ve explained many times, is that Trump will be undermining the benefits of the good things he’s accomplished – such as last year’s tax plan – if he insists on imposing higher taxes on trade. Protectionism isn’t just bad for taxpayers, exporters, consumers, and manufacturers. It’s also a net job destroyer.

The process of NAFTA began under Reagan, negotiations finished under the first President Bush (one of the few good things he did), and the pact was approved under Clinton (one of the many good things that happened during his tenure).

Let’s hope it’s not wrecked under Trump.

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