Monkey Makes His Move On Trade-- Another Bad Deal

I found it condescending-- and, honestly, kind of offensive-- that right after the president of Mexico, Enrique Peña Nieto, referred to Señor Trumpanzee as "President Trump," Señor T called him "Enrique." And then there was the way Trump smirked like a drooling moron when Peña Nieto referred to the trade agreement as "NAFTA." Anyway, watch the idiot in action; it's worthwhile and will give you a real window into his tiny ADT-mind. Everything about Trump is greasy and, beyond that, always grotesquely self-serving. "My farmers"... He, for example, patting himself on the head, falsely called the preliminary agreement is "the largest trade deal ever." And then the childish attempted bullying of Canada. He's just so disgusting and such a black mark against our country.

And beyond the optics, we have to ask ourselves if the deal is a lemon. "A car can look like a fantastic bargain on the lot, only to reveal itself as a lemon when you drive it away. It’s not so different with trade agreements.Take the deal hammered out Monday between the U.S. and Mexico on automotive imports, which the two countries hope to extend to Canada, the third member of the North American Free Trade Agreement. The key elements certainly look dramatic: lifting rules-of-origin requirements to 75 percent to avoid import tariffs, and a separate rule that 40 percent to 45 percent of content come from factories paying more than $16 an hour. The wage rule in particular is about twice what Mexican assembly-line workers make, and four times the average at parts companies there. When you take a look under the hood, though, there’s a lot less than meets the eye."

Tyler Coren wrote that the NAFTA deal isn't worth the price. "Ever have a big argument with your spouse, and think you won it? But then later realize that the momentary satisfaction of victory pales against the good will you lost? And if your spouse is miserable, you’ll probably end up miserable too. That’s the best analogy for what is going on right now with Nafta. The final result probably will be satisfactory, and in some ways it might even be a little better for the U.S. But the way it happened doesn’t seem worth the price."

In the abstract, the theory behind the President Donald Trump’s renegotiation of Nafta makes sense. His view is that multilateral trade agreements require the approval of too many parties, take too long to negotiate and end up watered down. So the U.S. might do better with bilateral negotiations. America might even have more bargaining power, due to its size and its resulting ability to dictate terms.

With something like that model in mind, the Trump administration set off to renegotiate Nafta. Trade was a major theme on the Trump campaign, after all, so it had to do something. And this was something.

There are reasons to believe, however, that this model does not quite apply. The Trans-Pacific Partnership, or TPP, was already in place, and that would have revised Nafta, as it includes both Canada and Mexico. Trump could simply have supported TPP, and he had the liberty and bargaining power to ask for revisions. Joining TPP also would have helped solve Trump’s China problem, by checking the economic rise of China in some parts of the Pacific region.

The problem is that TPP was not Trump’s creation-- it is the product of the previous administration, and President Barack Obama vigorously promoted it during his last year in office. So it would have been hard for Trump to take credit for it.

Then there is the question of whether the U.S. is getting a better deal by negotiating first with Mexico and then with Canada. What is known about the agreement so far shows only modest changes.

To avoid tariffs, 75 percent of a car has to be made in either the U.S. or Mexico, as opposed to the previous 62.5 percent. Some 40 to 45 percent of the content has to be made by workers earning at least $16 an hour, which would cover U.S. but not Mexican workers. That would shift some production back to the U.S., but would also raise the price of cars for U.S. consumers. Rules on intellectual property protection would be enforced more strictly, which has been the global trend in any case. The pact does not resolve the ongoing tariff crisis between the U.S. and Mexico on steel and aluminum, nor is Canada at the moment included.

Further details will doubtless emerge. But forgive me if I am not overwhelmed by these improvements. Possibly the new deal will weaken the investor protection provisions in Nafta, an acceptable but not major change. U.S. energy companies may receive greater access to Mexican markets, thereby limiting the previously privileged position of the Mexican state-owned energy sector.

Overall this is probably a better deal for the U.S., economically speaking. It may improve if Canada joins, and given the legislative calendar, Trump can be expected to present Canadian officials with a take-it-or-leave-it offer. Note also that many parts of the deal are likely to bear a resemblance to TPP.

But again: At what price? Canadians and Canadian politicians now feel slighted, and it will be harder for Canada to support U.S. initiatives, especially those led by Trump, in the future. It may be a long time before Canada feels like an even vaguely equal partner again. In the meantime, the U.S. and Canada have ongoing dealings and negotiations concerning water rights, border and migration issues, intelligence sharing, terror prevention, and presenting a (relatively) united front against other foreign powers, including Russia in the Arctic. The marginal gains in trade just don’t seem worth the deterioration in the relationship.

And should Mexico really feel elevated by getting the first crack at the deal? Surely it must know that it might not be the favored party the next time around.

Nonetheless, Trump is likely to get his victory, at least if Congress proves amenable. But there was a much easier way-- one that, instead of leaving America's reputation in tatters yet again, would have enhanced America’s international standing. Sadly, unsurprisingly, the president did not take it.

The Diplomat by Nancy Ohanian

It wasn't unexpected for the Wall Street Journal to run an editorial, Half A NAFTA yesterday. They are unimpressed. "We’ll reserve judgment until we see the fine print, but on first inspection this is half a Nafta that contains some improvements but is notably worse in many ways. Whether it can pass Congress is far from certain." The Journal finds many flaws, not least of which, from their Big Business perspective, "is that the bilateral deal strips current protections from most U.S. investors in Mexico. Oil and gas, telecom and power-generation investors will retain what they now have. Others will be protected only against physical expropriation... Why make it harder for U.S. firms to court customers abroad? The deal also imposes new red tape and costs on the auto industry to punish imports. The deal says that to get tariff-free treatment cars sold in North America must have 75% of their content made here, up from 62.5%, and at least 40% of the content must be made with workers who earn $16 an hour. This is politically managed trade, and its economic logic is the opposite of Mr. Trump’s domestic deregulation agenda. Ford and GM seem to have made their peace with this intrusion into their management, but car makers with assembly plants in Tennessee, Alabama and other GOP-leaning U.S. states could suffer if they import more than 25% of their parts."

This auto gambit is part of the Trump-Lighthizer strategy to blow up global supply chains, and it is a political strategy to get a revised deal through Congress. That also explains the deal’s new labor provisions that go far to imposing U.S.-style labor laws on Mexico. The details still aren’t clear, but Mr. Lighthizer said Monday those rules will be “enforceable” on Mexico as part of the new deal.

Mr. Lighthizer has quietly courted Ohio Democrat Sherrod Brown and protectionist Lori Wallach of Public Citizen during the negotiations. He’s betting that helping the AFL-CIO unionize more of Mexican industry will coax Democrats to support a new Nafta. Good luck with that. No trade deal has passed in recent decades without a preponderance of Republican votes. Democratic leaders in Congress have fought every one.

Yet by waiting so long to strike a new deal, Mr. Lighthizer may have made himself hostage to Democrats. Under trade-promotion law, there isn’t enough time to vote on the revised deal during the current Congress. The deal would go to the next Congress, which could be run by Nancy Pelosi and Chuck Schumer. Are they really going to support a Donald Trump trade deal? The President will need their votes because free-trade Republicans and U.S. businesses are likely to be a hard sell.