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Hereís What You Need To Know About Trumpís Proposed Trade Deal With Mexico; The Good and Bad
The Federalist ^ | 08/31/2018 | Helen Raleigh

Posted on 09/02/2018 9:27:38 AM PDT by SeekAndFind

U.S. stock markets surged Monday after President Trump announced the United States and Mexico have reached a preliminary trade agreement, which is part of the Trump administration’s effort to rewrite the North America Free Trade Agreement (NAFTA). Does this mean the new deal is a “huge” improvement over NAFTA? Not exactly.

President Trump has called NAFTA the “worst” trade deal in history, but an analysis of key provisions finds limited improvements, some compromises, and quite a few flaws in this new agreement.

The biggest improvement is with respect to digital trade, something missing from the NAFTA agreement established in 1990, when e-commerce was in its infant stage and few even knew what social media was. The new agreement stipulates “digital trade tariffs will be prohibited for digital products that are distributed electronically, such as e-books, videos, music, software and games.”

Another improvement is on intellectual property rights. The new agreement states that intellectual property copyright holders will have full copyright protections in markets of all member countries. This language may be used as a template for intellectual property rights discussions with China, a sore spot.

Now for the Compromises

The provisions also contain a number of U.S. compromises. The agriculture provision is a good compromise. It pretty much preserves NAFTA’s existing free trade provisions, while both sides agreed “not to impose tariffs on each other’s agricultural goods, and not to use export subsidies.”

This is good news for U.S. farmers because they’ve born the most cost of other nations’ retaliatory tariffs after the Trump administration hiked U.S. tariffs against several countries. Farm income has dropped almost 7 percent this year. Since most farmers are Trump supporters, the administration plans to offer them a $12 billion aid package.

But farmers would rather have free trade than receive more government subsidies. So this compromise with Mexico is welcome news to them.

Another compromise regards the so-called “sunset clause.” When the Canada, Mexico, and the United States started renegotiating NAFTA several months back, the Trump administration insisted a new NAFTA agreement should automatically expire after five years.

Canada and Mexico rejected that idea because they believe “companies needed greater certainty about the deal remaining in place to make the sort of long-term investments that drive trade.” So in this new U.S.-Mexico trade pact, the sunset clause stipulates that the new trade agreement is good for 16 years with a provision for review after six years.

Now for the Trade Deal’s Flaws

Besides improvements and compromises, the new U.S.-Mexico trade pact has a few flaws. For example, while the administration recognizes the value of free trade in agriculture, it is determined to “protect” the auto industry. The new trade pact contains a high wage clause that says “between 40% percent and 45% of auto content must be produced by workers earning at least $16 dollars an hour.”

This kind of minimum wage requirement would “force companies to either maintain more production in the U.S. and Canada—where wages are higher—or pay higher wages in their Mexican factories.” The deal also requires “Mexico to take specific steps to recognize collective bargaining rights.”

In addition, the deal demands “key inputs in automobiles, such as steel and aluminum, must be sourced in North America.” All these measures will be a boom to the U.S. auto industry and certain commodity producers (i.e., steel and aluminum companies), but U.S. consumers will end up paying the price because higher input costs mean higher sticker prices for cars.

Another flaw is about the international tribunals. NAFTA created these tribunals to resolve disputes between a company and a government within NAFTA. Canada, Mexico, and many U.S. businesses like these tribunals because they reduce uncertainty and the cost of doing business within NAFTA. But the Trump administration strongly opposes these tribunals.

In the end, the new U.S.-Mexico pact keeps the tribunals for some industries such as oil and gas, energy, and infrastructure, but not for other industries. But no government should pick winners and losers through its policies. It’s unfair that the risk and cost of doing business for industries who lose access to these dispute resolution mechanisms will rise when this U.S.-Mexico pact becomes effective.

The Stock Surge Is Due to Less Uncertainty

So why did stock markets surge Monday despite an imperfect deal? President Trump’s tough trade talk, threats of trade wars, and rounds of tariffs against friends and foes alike have created a great deal of uncertainty in stock markets. Investors have been nervous that the global economy would slow down from seemingly unavoidable trade wars.

The announcement of a preliminary trade deal between the U.S. and Mexico assures investors that a trade war is not imminent and the Trump administration is willing to settle for new trade deals. That is a great relief to anxious investors, who hate uncertainty more than anything else.

But investors shouldn’t cheer for the new trade pact too soon because our second largest trading partner and a key member of original NAFTA, Canada, is not part of this new pact, at least not yet. President Trump threatened to impose a 25 percent tariff on cars made in Canada if Canada doesn’t sign on to the U.S.-Mexico pact as-is. But Canada is no Mexico.

A Tight Timeline for Making This Work

We should keep in mind that Mexico’s political calendar helped push the deal through. Since Mexico just elected a socialist president, the U.S. and current Mexican governments are eager to sign a deal before he takes over on December 1. Current Mexican President Enrique Peña Nieto will leave office in a few months, so he has little political risk in being more accommodating to U.S. demands. Canada, however, reacted to a previous U.S. tariff with retaliatory tariff, and Canadian Prime Minister Justin Trudeau vowed not to be pushed around by America.

The United States and Canada have only a few days to work towards a possible new agreement.

The Trump administration is running up against a key deadline. It has to wait 90 days after notifying Congress before signing a deal. If it wants to sign a new NAFTA deal before the new Mexican president is sworn in on December 1, the Trump administration must send Congress the new trade deal by September 1. Some Republican lawmakers already warned that a new trade deal must include Canada. This means the United States and Canada have only a few days to work towards a possible new agreement.

If Canada blinks in the end and signs on to the U.S.-Mexico trade pact, it will be a big boost to President Trump’s deal-maker image and solidify his standing with his base. Traditional conservatives who believe in free trade will be disappointed due to clauses such as the minimum wage requirement and the recognition of bargaining rights. But such clauses appeal to Democrats’ union base.

AFL-CIO President Richard Trumka praised this trade pact as “going in the right direction.” I won’t be surprised to see union members come out to support Republican candidates Trump endorsed this fall. In the end, the rewrite of NAFTA won’t be a “huge” improvement on free trade, but it may help the GOP’s chances in November.



TOPICS: Business/Economy; Culture/Society; Mexico; News/Current Events
KEYWORDS: mexico; nafta; tariffs; tradedeal

1 posted on 09/02/2018 9:27:39 AM PDT by SeekAndFind
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To: SeekAndFind

Biggest flaw is that it did not mandate the return of all Mexicans in the U.s. back to Mexico. Send them all home! Ban remittances and trade from Mexico until they go home.


2 posted on 09/02/2018 9:29:13 AM PDT by Reno89519 (No Amnesty! No Catch-and-Release! Just Say No to All Illegal Aliens! Arrest & Deport!y)
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To: Reno89519

RE: Biggest flaw is that it did not mandate the return of all Mexicans in the U.s. back to Mexico

How could this deal be made if we DEMANDED this as a condition?


3 posted on 09/02/2018 9:30:22 AM PDT by SeekAndFind (look at Michigan, it will)
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To: SeekAndFind

“All these measures will be a boom to the U.S. auto industry and certain commodity producers (i.e., steel and aluminum companies), but U.S. consumers will end up paying the price because higher input costs mean higher sticker prices for cars.

Like a broken record. Robert Lighthizer is a gifted trade negotiator.


4 posted on 09/02/2018 9:35:53 AM PDT by ALX
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To: SeekAndFind
And in the deal, why are we insisting on unionizing in Mexico?! Trump wants to support this in Mexico while celebrating the Janus decision here at home?

What else changed? Are we stopping Mexican trucks and drivers at the border? I sure hope so and recall Trump talking about this in the campaign. Did this get forgotten?

What about respecting the border--stopping human trafficing as a condition of commerce? Maybe build the wall?

What about return of Mexicans to Mexico? And for Mexico to stop transhipping others via Mexico to the U.S.? And for Mexico to stop encouraging Mexicans go emigrate to the U.S.?

My conclusion is that this is a fake trade agreement. Mostly the same agreement with a few rather cosmetic changes. We need substantive changes. How do we undo the damage caused by NAFTA? I don't see that addressed at all.

5 posted on 09/02/2018 9:37:18 AM PDT by Reno89519 (No Amnesty! No Catch-and-Release! Just Say No to All Illegal Aliens! Arrest & Deport!y)
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To: SeekAndFind
The "flaws" are small potatoes, and are themselves still improvements.

Therefore the entire agreement is a win, for many other reasons:

- Because it is a WIN in trade negotiations,

- Because it pressures Canada to achieve a negotiated settlement,

- It pressures China and demonstrates Trump's resolve.

6 posted on 09/02/2018 9:38:36 AM PDT by G Larry (There is no great virtue in bargaining with the Devil)
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To: SeekAndFind
Do it through commerce. Both nations agree to stop all illegal commerce and financial transactions, especially the results of illegal activity. The US would be bound to stop all private remittances from Mexicans in the US to Mexico. We should anyway. Unless they can prove that they were legally authorized to work, that US taxes were paid, the monies should be seized. Further, why not provision commerce to include credits or something for repatriated Mexicans. Make it in Mexico's interest to bring these workers and families home.

No, this "deal" is simply an open-borders, cheap-labor-express, chamber of commerce loved give away. Americans lose with this new NAFTA. Better to end NAFTA than swap it with the same thing.

7 posted on 09/02/2018 9:41:40 AM PDT by Reno89519 (No Amnesty! No Catch-and-Release! Just Say No to All Illegal Aliens! Arrest & Deport!y)
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To: SeekAndFind

And who is going to pay for Mexico’s “new” socialism?? The drug cartels?? HA! Certainly not the impoverished people, a good percentage of which are living off the U.S. taxpayer....

But overall, this deal is a big plus win!!! In spite of the fact that we are STILL stuck with paying for a big chunk of Mexican poverty.....


8 posted on 09/02/2018 9:44:13 AM PDT by EagleUSA
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To: ALX

Baby steps, boys and girls, baby steps.


9 posted on 09/02/2018 9:44:17 AM PDT by Don Corleone (Nothing makes the delusional more furious than truth.)
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To: SeekAndFind

What’s its purpose other than to screw the US?


10 posted on 09/02/2018 10:29:38 AM PDT by bgill (CDC site, "We don't know how people are infected with Ebola.")
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To: SeekAndFind
But farmers would rather have free trade than receive more government subsidies."

Not so sure about that. Many farmers have been living off of subsidies for a couple of generations. Especially dairy farmers. Probably corn, soy and wheat as well.

"For example, while the administration recognizes the value of free trade in agriculture, it is determined to “protect” the auto industry. The new trade pact contains a high wage clause that says “between 40% percent and 45% of auto content must be produced by workers earning at least $16 dollars an hour.”

That's pretty sad. $16/hr for a factory job which requires almost zero skills while "semi-skilled"(I call it skilled) auto repair techs outside of the cities have a hard time making that much.

What about boat builders or any other similar manufacturing job? No love for them even though they do the same type of work?

One flaw about President Trump is that he thinks of auto manufacturing as some kind of American icon but unfortunately, I think those days are long gone. Everyone makes cars now and the whole bailout thing kind of killed the romanticism.

11 posted on 09/02/2018 10:37:59 AM PDT by Pollard (If you don't understand what I typed, you haven't read the classics.)
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To: Reno89519

The only reason I can think is because it puts that onus on Mexico helping U.S. auto manufactures, who are already saddled with unions, to compete on a more even playing field. The Janus decision made belonging to a union optional, so Mexican workers could do the same. But chances are that some will opt to be in a union, while others will not. But the company will still have unions.


12 posted on 09/02/2018 11:59:10 AM PDT by Robert DeLong
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