After threatening for months to blow up the North American Free Trade Agreement, President Donald Trump seems to have settled for a modest rebranding – so far as trade with Mexico is concerned, anyway. His new “United States-Mexico Trade Agreement” would leave arrangements that have spurred innovation, growth and economic integration of the two countries mostly intact.
Granted, the deal is not yet done. What’s been announced is only a “preliminary agreement.” Talks with Canada are next and could be more acrimonious.
The details of the accord aren’t yet clear, but the Trump administration’s fondness for managing trade flows, as opposed to letting market forces decide who sells what to whom, is apparent. The agreement calls for an increase in regional content for trade in cars – from 62.5 percent to 75 percent, with 40 percent to 45 percent of production done by workers earning at least $16 an hour. New rules could open the door to tariffs as high as 25 percent on cars produced by new factories that don’t comply. Net result: higher costs and higher prices. Replacing tariffs on Mexican aluminum and steel with quotas would also hurt consumers.
More encouragingly, the U.S. has watered down its demand for a sunset clause on the agreement – an idea that would have made it harder for businesses to plan ahead. Dispute-settlement procedures will be narrowed but not eliminated. And there are provisions to encourage trade and investment in digital and financial services, help small businesses to export, and strengthen labor rights and environmental protection in Mexico.
Turning to Canada, Trump has started, as usual, with a threat. He said he’ll “tariff their cars coming in” and may proceed with a bilateral deal with Mexico (which Mexico doesn’t want) unless he gets his way.
In short, the uncertainty that Trump has injected into trade relations with the country’s closest neighbors is far from dispelled. The same goes, only more so, for relations with Europe and especially China. Thanks to Trump’s promiscuous linkage of trade and security issues, tensions have roiled the most important U.S. economic relationships.
Rebranding NAFTA is better than pulling it apart – but if this modified accord with Mexico is the best Trump can do, it would have been less disruptive, and better for the U.S. economy, to have left well-enough alone.
Bloomberg View editorial.
