“It’s the economy, stupid,” — a famous iteration describing the main (perhaps sole) determining factor in elections. All things considered, the U.S. economy is performing fairly well. Unemployment figures are low as low gets. At 3.9 percent, we are reaching unemployment figures not seen in half a century. GDP growth was 4.1 percent for the second quarter, helped by a 13.3 percent rise in goods exports. And yet, Trump’s latest trade antics could threaten all this good fortune.
In one of the most awkward press conferences/conference calls, Trump announced the U.S.-Mexico Trade Pact. One would think it would be completely different from NAFTA, considering Trump berates the deal every time its name is uttered. However, the only significant difference is how it treats automobile manufacturing.
Car companies will have to manufacture 75 percent of a car’s value in North America (up from 62.5 percent). Moreover, 40 to 45 percent of the cars made have to be made by workers making at least $16 per hour. In essence, it means that 40 to 45 percent will be U.S. workers. This will help the almost million American auto workers at the expense of the tens of millions of Americans who purchase and lease automobiles. The whole point of free trade is to increase optimization, which includes reducing costs. While it is important to improve labor and environmental standards in Mexico to create fair competition, it does not mean we should use protectionist policies.
Even though one could easily debate the new rules, one cannot admit truthfully that this trade deal should go on without Canada. The Trump administration seems to only use the stick with close allies and honey with authoritarian regimes. Canada faces an ultimatum about whether it will join what will be commonly known as NAFTA 2.0 (if it passes).
“Today the president notified the Congress of his intent to sign a trade agreement with Mexico — and Canada, if it is willing — 90 days from now,” United States Trade Representative Robert E. Lighthizer said in a statement.
The United States seemingly would rather alienate Canada in the process of some simple changes to a 24-year-old trade pact. This risks decades-old supply chains becoming disrupted, which could cost American consumers untold amounts of money.
According to the Office of the United States Trade Representative, U.S. goods and services trade with Canada totaled $673.1 billion last year. Although Trump has lied numerous times before, the United States has a modest trade surplus with Canada (about $8 billion).
It seems like much of the contention is because Trump loves a fight. And the main issue regarding the biggest trade deal the United States would make is dairy.
“If it doesn’t happen, then we’ll put tariffs on the cars coming in from Canada, and that’ll be even better,” Trump said, referring to Canadian dairy tariffs. “But I think it’s going to happen, and we’ve really developed a very good relationship.”
One would think that since Trump is risking higher costs for Americans, dairy exports to Canada must be high. But the United States only exported roughly $5 million worth of milk protein isolates to Canada. Granted, much of that is attributed to the quotas set on imports, but the dairy industry is highly regulated in both Canada and the United States.
The truth about NAFTA is that it probably wasn’t the best thing for U.S. employment. With every complex deal, there are winners and losers. Most economists think it didn’t have any net effect on U.S. employment. But Trump cannot just undo the damage NAFTA did to U.S. manufacturing with a new trade deal — first, because automation mostly contributed to the decline in employment, but also because there isn’t enough to change. The new changes are miniscule compared to the original trade deal. If Trump really wanted to better American trade policy, he would’ve been able to get the changes adopted more quickly and set his sights on other regions.
But Trump would rather argue over milk like a kindergartener in a cafeteria.