A New NAFTA?

During his 2016 Presidential campaign, Trump repeatedly claimed that, if elected, he would end all of the United States’ “bad” trade deals and replace them with better ones. Trump voiced his concerns about the North Atlantic Free Trade Agreement (NAFTA) in particular by referring to it as the “worst trade deal in history.” Created in 1992 by the U.S. President, Mexican President, and Canadian Prime Minister at the time, NAFTA established an economic agreement that reduced tariffs on the majority of goods traded between the three countries. Breaking down policy barriers between the countries allowed for more technology transfer, increased foreign direct investment, and the exchange of resources and expertise. The goal of the original agreement was to improve North American economic development through increased integration. Despite the economic benefits of NAFTA, Trump has insisted that its potential negatives outweigh the positives. As President he has the power to terminate the agreement without congressional approval; his only requirement is to give six months’ notice. According to Trump, the U.S. economy has lost jobs due to industries moving to Canada or Mexico and the cheaper relative cost of labor, particularly agricultural labor, in Mexico. Trump believes that reintroducing tariffs between the three countries by eliminating NAFTA would help protect American jobs. However, Trump’s made a similar argument when he elected to place harsher tariffs on Chinese imports – the results of said action demonstrated the very real danger of retaliation. After Trump placed the first tariffs on Chinese steel and aluminum under the guise of a national security threat, China responded by placing its own tariff on U.S. agricultural and manufactured goods, such as soy beans. Due to the potential loss of demand for U.S. soybeans from China, U.S. agricultural workers, important constituents for Trump, will likely be the most harmed by this policy. Still, Trump continues to insist that NAFTA must be thrown out for a “better” trade deal. Last month, he began renegotiation talks for a potential trade deal with Mexico, excluding Canada. Based on the dialogue thus far, the proposed agreement appears to be fairly similar to the economic policies established between the two countries under NAFTA. Aside from a name change, the United States-Mexico Trade Agreement maintains key aspects of NAFTA simply updating terms regarding digital economies, and the labor, agricultural, and automobile industries. However, all of these changes will later needed to be altered to include Canada as well. Despite heated public discourse between Trump and several Canadian officials, including Prime Minister Trudeau, both U.S. and Mexican trade representatives have indicated their willingness to include Canada on the deal even if that delays its authorization. Alternatively, both countries are willing to first settle a bilateral agreement that Canada can join at a later date. Despite the benign appearance of the renegotiation, the new trade deal actually provides an option for the U.S. to still enact specific tariffs against Mexican imports at the concern of “national security.” The Trump administration has already shown interest in using this loophole to place tariffs up to 25% on auto imports such as Mexican-made vehicles and auto parts. A Cold War-era law which declared that a weakened or shrinking U.S. auto industry is considered a national security threat is being used to justify this decision. In order to avoid these high tariffs, the United States has required that a provision be included that indicates that 75% of an automobile’s value must be manufactured in the United States and that 40-45% of its body be assembled by workers earning at least $16 an hour. So far, Mexican officials have agreed to the terms set up by the Trump administration, although they continue to protest high tariffs that could cost Mexican companies significant profits and force layoffs. Yet despite major political disagreements between Trump and the Mexican government since his campaign, mainly over the topic of proposed wall along the U.S.-Mexico border, all signs seem to indicate that the United States-Mexico Trade Deal, a renegotiated bilateral NAFTA, will pass. The only question that remains is whether Canada will join. With many major companies having already expanded their operations to all three countries, Canada’s inclusion could help simplify certain aspects of the agreement.

REFERENCES

  1. Ana Swanson, Katie Rogers and Alan Rappeport. (2018 Aug 27). "Trump Reaches Revised Trade Deal With Mexico, Threatening to Leave Out Canada". The New York Times.
  2. Damian Paletta , Erica Werner and David J. Lynch. (2018 Aug 27). "Trump announces separate U.S.-Mexico trade agreement, says Canada may join later". The Washington Post.
  3. Patrick Gillespie. (2016 Nov 15). "NAFTA: What it is, and why Trump hates it". CNN Money.
  4. Al Jazeera. (2017 Aug 19). "What is NAFTA and why does Trump want it renegotiated?". Al Jazeera.
  5. Alanna Petroff, Rishi Iyengar and Jethro Mullen. (2018 May 30). "US-China trade battle: Catch up here". CNN Money.
  6. David Shepardson and Ana Isabel Martinez. (2018 Aug 28). "U.S.-Mexico trade deal may allow Trump to put tariffs of up to 25% on Mexican auto imports". Global News & Reuters.

About Author(s)

Mallory.Perillo's picture
Mallory Perillo
Mallory is a Senior at the University of Pittsburgh pursuing dual degrees in Mathematics-Economics and Africana Studies and International & Area Studies with a minor in Spanish. She has studied abroad in Havana, Cuba and Barcelona, Spain. Currently, she is working on her Bachelor of Philosophy thesis analyzing the impact of U.S.-Cuban relations on contemporary race relations in Cuba.