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Brief #25—Economy

Policy Summary
Almost one week ago, the events of an emerging US instigated  trade war took an interesting turn as it was announced that the U.S. and Canada had settled on a compromise in their long-standing and complicated negotiations regarding the North American Free Trade Agreement (NAFTA). As previously reported, the U.S. reached an agreement with Mexico over a month ago. Canada made no immediate move to pander to President Trump’s proposed threats regarding auto manufacturing tariffs that could affect their economy. The negotiations on the part of the Trump administration, though, finally reached a breakthrough when Canadian officials accepted a counteroffer from the U.S. government to a detailed proposal that they had previously submitted.

This new trade pact that all three nations have reached will be called the United States Mexico Canada Agreement (USMCA).  As of now, the result seems to be that President Trump’s aggressive means of negotiating, by way of imposing tariffs and making threats aimed at scaring other nations into compromising, has worked to a small degree. One of the primary things that President Trump sought to gain from his attempts to strong-arm the Canadian government was access to their dairy market. This new trade pact grants him a modest opening, similar to the one his negotiations granted the U.S. in the Mexican auto manufacturing market. All this leads us to the glaring notion that as far as policy goes, all that he has truly accomplished is gaining what Brookings Institute’s Geoffrey Gertz describes as “modest concessions.” It should not be forgotten that all three nations have enjoyed the substantial economic benefits that stemmed from NAFTA.  As of now, it cannot be determined whether all such benefits will continue USMCA, a trade pact that has so far swung in the direction that the U.S. wanted and away from the directions that Mexico and Canada initially hoped it would.

Analysis
Apart from its new name, how will this new trade pact differ from NAFTA? Analysts have indicated that for the most part, the primary changes are on the surface. While the concessions on the parts of Mexico and Canada have resulted in  rule-of-origin changes for the auto manufacturing industry and an increase in U.S. access to Canada’s dairy market, there aren’t likely to be any dramatic changes for the typical American consumer in their everyday life.

That is not to say that we shouldn’t be concerned about the possible long term effects of this deal. From a macro perspective, it is easy to see that there could easily be problems ahead that President Trump has not considered. While it is true that Canada and Mexico did take steps to cater to the demands of the U.S, it should be noted that both their economies depend considerably more upon the U.S. than the latter’s does on theirs. Mexican officials were likely  to appease President Trump’s demands because they knew that being further alienated from U.S. markets could have significant effects on their nation’s economic system.

We should absolutely not take these instances as an indication that President Trump has been justified in his negotiation tactics and use of tariff policies. Through it all, he has been continuously running the risk of undermining his nation’s long-term interests and influence on a global scale. The U.S’s technique of exerting ‘soft power’ to convince other countries that their interests run parallel with America’s has worked well for the purpose of growing a global order based on open markets and mutual respect. Canada and Mexico could easily interpret the recent process of renegotiating and rebranding NAFTA as a sign it would be in their best interests to be less inviting of U.S. power as all three nations move forward. Other nations who have been watching these events play out will likely take heed of the same lesson–a nation that has treated two of its closest allies and trading partners badly will not hesitate to do the same to others. It will be significantly difficult for these policies not to undermine  U.S. global influence, possibly throughout the years after President Trump has left office.

On the whole, it would appear as though the renegotiations that have led to the drafting of the USMCA can be classified partially as an exercise in rebranding and partially as a power grab on the part of President Trump. Despite his clear condemnations of NAFTA both on the campaign trail and after taking office, he has ended up with a deal that looks remarkably similar to what he once called “the worst trade deal in history.” While he has done everything in his power to rebrand the new deal as his own, most of changes do not differ that greatly from the NAFTA agreement, and according to many analysts, the means by which he went about it do not justify the end product.

The new trade pact has yet to be ratified, though, and will need congressional approval before being signed into law. The midterm elections are swiftly approaching and their results will likely have a significant effect on the signing of the USMCA.  Congressional Democrats are unlikely to endorse such a deal and if more are elected, the result could easily swing in the direction against President Trump’s new trade deal.. 

Resistance Resources:

  • The Institute for Policy Studies is a progressive think tank that conducts research on matters that include economic policy and economic justice.
  • The Center for Economic and Policy Research is a non-profit research association that works to promote democratic debate on important economic and social matters.
  • The World Economic Forum is a research foundation dedicated to engaging business and political leaders to help shape regional agendas, both reginal and global.

 

This Brief was submitted by USRESIST NEWS Analyst Sam O’Brient:  Contact sam@usresustnews.org

Photo by Hermes Rivera

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