Publish in Commentary - Thursday, October 19, 2017
Canada’s foreign minister Chrystia Freeland, US Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo announcing the results of the fourth round of NAFTA talks October 17, 2017. (Photo: USTR)
The US position will hurt, not help, US consumers and companies.
The Trump Administration is playing with fire when it comes to trade, most notably the North American Free Trade Agreement (NAFTA).
The fourth round of talks to renegotiate the 23-year old trade pact showed US negotiators as willing to end NAFTA completely despite its success.
The US position came as a surprise since US Trade Representative Robert Lighthizer in July announced objectives that were met with relief by Mexico and large parts of the business community in North America. (See NAFTA: What Now?).
However, US demands now include forcing renegotiation of the pact every five years (which would clearly undermine the purpose of the trade pact), reserving the lion’s share of automotive manufacturing for the United States and making it easier to pursue import barriers against some Canadian and Mexican goods, Reuters reports.
“We have seen proposals that would turn back the clock on 23 years of predictability, openness and collaboration under NAFTA,” Canada’s foreign minister Chrystia Freeland pointed out.
Mexico also rejected the US position.
“Yes we want an agreement, yes we want to find a win-win situation, but this won’t be at the detriment to our national interests,” Mexican Economy Minister Ildefonso Guajardo told reporters after the latest NAFTA talks ended.
While the Trump Administration continues to be obsessed by the trade deficit with Mexico, it completely ignores the benefits NAFTA has brought to US exporters.
Before NAFTA, Mexico’s economy was largely closed and protectionist. Today, it is one of the most open economies in the world.
The main beneficiaries have been US exporters. Exports of American goods and services jumped from $51.9 billion in 1993 – the last year before NAFTA entered into force – to $231 billion last year, according to a Latinvex analysis of US Census Bureau data.
One likely scenario if the Trump Administration continues its course is that Mexico and Canada will continue with NAFTA without the United States.
While that clearly will be a negative factor for Mexico, it will hurt the United States even more.
Mexican exports to the United States will benefit from low tariffs, while US exports to Mexico will be hurt by higher tariffs.
The result? A likely widening – not reduction – of the US trade deficit with Mexico.
In any case, trade deficits are the direct result of market forces, in the case of US-Mexico trade that means simply that the demand for Mexican goods among US consumers and companies outstrips the demand for US goods among Mexican consumers and companies.
“Economists generally argue that it is not feasible to use trade agreement provisions as a tool to decrease the deficit because trade imbalances are determined by underlying macroeconomic fundamentals,” says a new, 37-page report from the Congressional Research Service.
The Trump Administration position will hurt, not help, US consumers and companies, making imports of goods from Mexico – everything from cars to TVs -- more expensive.
Free trade has proven to be generally positive all over the world. North America is no exception.
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