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USMCA: A Marginal NAFTA Upgrade at a High Cost

April 10, 2019 in Economics

By Daniel J. Ikenson

Daniel J. Ikenson

On the campaign trail, Donald Trump vowed to strengthen
enforcement of existing trade rules and negotiate better trade
deals than his predecessors had. With his national security tariffs
on steel and aluminum, his safeguard tariffs on washing machines
and solar components, his broad trade war with China, and the
looming specter of new barriers for automobile imports, President
Trump has delivered—for better or worse—on the first
promise. On the second, he has little to show.

On Sept. 30, 2018, American, Mexican, and Canadian negotiators
reached a deal to replace the North American Free Trade Agreement
(NAFTA), which President Trump had described as “the worst
trade deal ever negotiated.” Two months later, Trump and his
Mexican and Canadian counterparts signed the “United
States-Mexico-Canada Agreement” (USMCA), which
modernizes—and revises in ways both good and bad—the
25-year old NAFTA. But before the USMCA can enter into force, it
must be approved by the legislatures of all three countries. This
will be a heavy lift.

Whether the U.S. Congress passes the implementing legislation,
which will be introduced by the administration after an assessment
of the deal is published by the U.S. International Trade Commission
on or around April 19, remained an open question at press time. But
considering the controversial substance of the agreement, the
vitriolic nature of America’s partisan politics, and the fact
that the presidential primary election season is rapidly
approaching, prospects for passage before the November 2020
elections are no better than 50-50, and fading.

NAFTA certainly enabled
more cross-border final goods trade, but it also facilitated the
development of a globally competitive North American production
platform, most consequentially in the auto sector.

Why did the president choose to renegotiate NAFTA? How does the
USMCA compare to the original NAFTA? How does it compare to other
important benchmarks? Why are its prospects for congressional
approval so uncertain? And what will happen if it doesn’t
pass?

Have We been Losing at Trade?

American presidents of both major parties from Franklin D.
Roosevelt through Ronald Reagan to Barack Obama considered trade a
mutually beneficial endeavor, essential to global economic growth
and prosperity, and integral to promoting peace among nations.
President Donald Trump doesn’t share this perspective. He
sees trade as a zero-sum competition between Team America and
foreign teams—a win-lose proposition—where exports are
America’s points, imports are the foreign teams’
points, and the trade account is the scoreboard. To Trump,
perennial U.S. trade deficits mean that the United States has been
losing at trade for decades, and it has been losing because it has
negotiated bad trade deals.

It is in that context that the president deemed NAFTA a failure
and set out to revise its provisions …read more

Source: OP-EDS

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