NAFTA is now USMCA
S E E D E D C O N T E N T
Nothing President Donald Trump says about trade makes sense, so you have to look at the actual policy.
That’s especially true if you, like me, are broadly sympathetic to the view that the pre-Trump bipartisan trade policy consensus really had veered off course. And looking this morning at the text of the apparent deal to rework NAFTA — including a rebrand of the agreement as USMCA (a.k.a. the United States-Mexico-Canada Agreement) — it seems like Trump has made the deal better in some ways and worse in others, and most of all has actually not changed the underlying structural flaws in the US approach to trade policy.
The good, the bad, and the meh
A lot of the US-Canada wrangling was about the technical details of dispute-resolution mechanisms, which I don’t think is very interesting in this context and where, at the end of the day, Canada overwhelmingly got its way and nothing is changing.
So we’re left with three big buckets of change.
The good: cars. The new deal both raises the share of North American auto parts that need to be in a car to qualify as NAFTA-compliant and also basically imposes higher minimum wage rules on Mexican auto factories. This is good for American autoworkers and probably good for Mexican autoworkers, and the downside is cars will be more expensive. But expensive cars are good! Obviously Trump is not much of an urbanist, but I am — and at the end of the day finding ways to discourage car ownership that help rather than hurt US autoworkers is a good idea.
The bad: copyright. As has become typical for American trade deals, one big thing we did was strong-arm our trade partners into adopting America’s super-long copyright term rules. This is good news for you if you happen to own the copyright to, say, Batman. But it’s bad public policy. And one of the worst things the US does is use international trade negotiations to spread our bad domestic copyright policy to foreign countries.
The meh: dairy. After all the screaming and yelling about Canadian dairy tariffs, we got Canada to make concessions on allowing imported American milk that are slightly bigger than the concessions they made in the Trans-Pacific Partnership. This is a nice small win for US dairy farmers and Canadians who consume dairy products. But that’s the weird thing about it: This is a concession the US “won” in the talks, but the winners are overwhelmingly Canadians. We are just saving them from their own dysfunctional dairy policy. Most Americans won’t be impacted at all, and if we are it will take the form of higher dairy prices.
Last, emphasizing Trump’s taste for theater, they are renaming the agreement so he can spin this set of relatively small modifications as him getting rid of NAFTA. They want to call it USMCA now, which is unpronounceable. I would suggest USMECA, which not only is a word you can say but would (like NAFTA) sound pretty similar in both English, Spanish, and French.
The problem with trade
What didn’t happen here was any change to the flawed way American thinks about trade policy.
The way trade is done in the United States right now is the United States Trade Representative’s office sits down with a bunch of representatives of powerful American interest groups and asks them what they would like to see in an international agreement. Then we go out and try to score those wins — wins that often are only tangentially related to trade policy. Any agreement done in this way is inevitably a mixed bag, and I think the critics tend to overstate their harms.
But it’s a backward way of thinking about what we want from trade policy.
What we ought to do is look through the other lens of the telescope. What are the big cost-centers for American citizens, and how can international economic integration make them less burdensome? Creating speedy pathways for foreign medical professionals to work here — or for medical work to be outsourced — should be a no-brainer. Opening up hyper-concentrated domestic industries like aviation to more foreign competition also belongs on the list.
The Canadians, in this sense, actually got the best deal out of this. Possibly by accident, they were “forced to” modify a bad domestic policy driven by an anti-competitive domestic interest group.
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The edict that 75% of the car & parts must be made in NA is a an empty victory.
Back in 2011 as a conglomerate figure, all cars exceeded the 62.5% mandate with an average of 66.5%.
In anticipation of TTP becoming law most manufacturers now exceed 75% of the mandate.
The top 3 GM models are at 91% ( up from 71% last year) , Honda and Toyota made sure their passengers cars met or exceeded 80% years ago.
Doesn't seem like much has changed to me.
I don't see how we can dictate what another country pays their workers.
In essence they are dictating to Ford, GM, Fiat Chrysler, Toyota, Honda, Mazda, Infiniti, VW/Audi, BMW and Kia
to raise the wages in Mexico and the price of the cars & trucks to compensate.
So far the US tariffs have bee waived for vehicles meeting the 75% threshold, but Trump retained the right to impose them at any time.
"The good, the bad, and the meh"
Should have been "The Good, the bad, and the smugly..."
With his dumb fat smug smile, Trump is going to spin this as a huge conservative win even though it leaves the supposedly conservative-hated NAFTA pretty much in tact except for a few small caveats that weren't that big a deal, they just sound impressive to the uninformed. I suppose that's all he needs to convince his base this is the next best thing to sliced bread, well informed they are not.
Whether or not the Dems are in charge of anything is immaterial. Even if it is fast tracked it won't go into effect until some time in 2020 and today, it was Republican Senators questioning whether it can pass the current House and Senate.
The new USMCA is much like the new KORUS deal with South Korea.
There's little meat on the bone, but President Trump gets to say he renegotiated it and it's a "major victory".
Over half of the KIA/Hyundai made in North America are sold in North America and have as little as 1% USA parts in them.
the cap on US vehicles entering SK was doubled to 50,000 when we have never come close to the previous caps (Bush 2066 or Obama2012 )
So there is literally no demand for American vehicles and most of out trucks are too big and the tariff makes them too expensive
which favors GM's Daewo division which sells utility vehicles ( 132,000 a year ) fit for SK countrysides.
Bottom line the deal is a paper tiger which benefits SK more than the USA