Trump administration reveals its goals in renegotiating NAFTA
The Trump administration on Monday unveiled its goals for renegotiating the North American Free Trade Agreement, advancing an effort to rewrite the terms of trade that could transform the economy for decades to come.
Items on the administration's agenda include a U.S. push to reduce its trade deficit with Mexico, further restrictions on the amount of imported material in goods that qualify for the agreement and the elimination of a controversial mechanism to review trade remedies.
“Too many Americans have been hurt by closed factories, exported jobs and broken political promises,” United States Trade Representative Robert Lighthizer said in a statement that accompanied the goals. “Under President Trump's leadership, USTR will negotiate a fair deal.”
More than a third of U.S. exports flow to Canada and Mexico, and business and labor groups are watching closely to see what President Donald Trump's team prioritizes in the negotiations. Companies that export products to Canada and Mexico are wary of anything that could limit their future access to those markets. Firms that have struggled against foreign firms — as well as labor groups that have seen their members' wages undercut by foreign workers — are hoping for measures that give them a leg up on foreign competition.
Yet many of the goals were described in general language, highlighting the challenge Trump faces in transforming his criticism of current trade deals into concrete policy proposals that live up to his promises.
In the 17-page document that accompanied the release, the trade agency outlined a plan to maintain the tax-free access that U.S. sectors including textiles and agriculture have for exports to Canada and Mexico, while smoothing regulatory hurdles like customs treatment.
The document called for updating and strengthening rules that mandate the minimum amount of materials a product can have from a NAFTA country and still qualify for the pact's preferential treatment. It called for new rules to govern the trade of services, like telecommunications and financial advice, as well as digital goods like music and e-books, which were not included in the original 1994 agreement.
The notice called for eliminating the Chapter 19 dispute settlement mechanism, which allows companies to appeal decisions by domestic courts on trade remedies in an alternative panel. The U.S. lumber industry and others have railed against the mechanism, arguing that it prevents the United States from fully enforcing its trade laws.
It also called for creating an “appropriate mechanism” to ensure that the countries did not manipulate their currency to gain an unfair competitive advantage, a practice that China has used in past years to subsidize its exporters.
Democrats were critical of the measures, saying they didn't go far enough.
“The summary of objectives published today raises more questions than it answers,” said Rep. Richard Neal, D-Mass. “In certain areas, there continues to be a complete lack of clarity or specificity,” suggesting the Administration may not even know what it wants in a new NAFTA. And in other areas, the objectives reveal an approach to trade negotiations that looks like the same, conventional approach taken in previous trade agreements — suggesting that the “new” NAFTA might not be new at all.”
Republicans were more positive about the statement, though some still had criticisms.
“These objectives set an ambitious standard for improving NAFTA and make clear that the United States is seeking strong, enforceable rules that go beyond any agreement ever negotiated,” Rep. Kevin Brady, R-Texas, said in a statement. “Setting such high standards allows us to use an improved NAFTA as a model for future trade agreements, which means that the United States would be setting global rules — not our competitors.”
Sen. Orrin Hatch, R-Utah, welcomed the objectives as “an important part of the public discussion about the launch of the upcoming trade talks among our three nations,” but said that future objectives must include stronger protections for intellectual property rights.
NAFTA was a favorite target on the campaign trail for the president, who called the pact “a defective agreement” and “the worst trade deal maybe ever.” President Trump has often threatened to withdraw from NAFTA — including during a few tense days in April, where the administration nearly scrapped the agreement, only to reverse its decision after pleas from U.S. business and foreign allies. At times, it has been unclear whether his fiery rhetoric represented a true policy stance or merely an attempt at leveraging further concessions from Canada and Mexico.
Current trade law requires the administration to publish “a detailed and comprehensive summary of the specific objectives” at least 30 days before the United States begins talks with Canada and Mexico. The administration has said that negotiations could begin as soon as August 16.
A bipartisan deal negotiated by George Bush and signed into law by Bill Clinton, NAFTA went into force in January 1994. Over the course of years, it eliminated tariffs on most products traded among the three countries, including agricultural goods, automobiles and textiles. The deal was designed to knit the three economies of North America closer together, raising Mexico's standard of living and create a valuable new export market for U.S. and Canadian businesses.
Critics at the time argued that the difference between U.S. and Mexican wages would send millions of American jobs over the southern border — what presidential candidate Ross Perot memorably warned of as a “giant sucking sound.” The deal still has plenty of critics, who accuse NAFTA of hollowing the U.S. manufacturing sector, especially in sectors like automobiles. But U.S. farmers, retail chains and other industries consider the deal to be integral to their supply chains and have urged the administration to first “do no harm” in its negotiations.
Economists generally take a more nuanced view of the pact, believing that it has broadly benefited the U.S. economy by increasing trade and lowering the cost of consumer goods, while hurting very narrow groups of workers, who saw their jobs relocated across the border. In a 2012 survey of 41 prominent economists by the University of Chicago, 85 percent agreed that Americans were better off under NAFTA that previous trade rules. Only 5 percent said they were uncertain, and none disagreed.
Research by economists Shushanik Hakobyan and John McLaren found that NAFTA did lower wage growth for blue-collar workers in the most affected industries during the 1990s. Overall, it concluded that the impact of NAFTA on American wages was small. A study by economists David Autor, David Dorn and Gordon Hanson found no discernible impact on U.S. wages from trade with Mexico and Central America.
“There is almost no evidence that NAFTA was substantially harmful for U.S. workers. That myth has been promulgated by people from Ross Perot to Pat Buchanan to Donald Trump, but there is not any academic support for it,” said Autor, an economist at the Massachusetts Institute of Technology. His work has shown that China's entrée into the international trading system in 2001 had a far bigger impact on U.S. workers.
Yet NAFTA has clearly knit the economies of the United States, Canada and Mexico together, and economists say fracturing those connections could prove to be painful. Under the deal, regional trade has tripled to more than $1.1 trillion in 2016. The U.S. Chamber of Commerce estimates that 14 million American jobs depend on trade with Canada and Mexico.
Trump's opposition to NAFTA dates back to the origin of the agreement itself. In 1993, he criticized the deal, saying it would only benefit Mexico, according to local news reports at the time.
Trump was similarly opposed to the Trans Pacific Partnership, a 12-country trade deal that included Canada and Mexico. The deal would have replaced some of NAFTA's provisions and was widely viewed as a NAFTA 2.0 for the North American trading bloc. Though the deal was considered dead due to opposition in Congress, Trump declared his opposition by officially withdrawing the United States from the deal on his first Monday in office.
In his criticism of trade deals, Trump has formed an unusual alliance with labor-friendly figures on the political left, often sounding more similar to presidential candidate Bernie Sanders and AFL-CIO president Richard Trumka than Republicans who have traditionally supported free trade.
Other key figures in the NAFTA renegotiation are believed to be a more moderating stance to Trump's protectionist rhetoric.
Robert Lighthizer, the administration's main trade negotiator, has a reputation for taking tough action to protect American trade interests under the Reagan administration. Yet in testimony to Congress, he assured lawmakers that he would seek to first do no harm to an agreement that he acknowledged as important for American farmers and industries.
Wilbur Ross, the commerce secretary who Trump has entrusted with much of his trade agenda, has been even more moderate. A past supporter of the Trans Pacific Partnership, Ross said in May that certain concessions Mexico and Canada made in the TPP negotiations should be viewed as a “starting point” for NAFTA
“There are some concessions that the Nafta partners made in connection with the proposed TPP,” Ross said in with Bloomberg Television. “There is no reason to throw those away.”
In a conference call with press Monday morning, Democratic lawmakers and labor leaders said this approach would fall short of Trump's promises to blue-collar workers.
“NAFTA needs to be fundamentally rewritten, not merely tweaked, and working people are united in our demand to rewrite NAFTA,” Richard Trumka, president of the AFL-CIO, said. “If the group in Washington refuses to get the job done, American workers will find leaders who will.”
The Trump administration is renegotiating NAFTA under a legal provision called fast-track authority, which gives the president wide authority to independently broker a trade agreement before submitting it to Congress for an up-or-down vote. The statute requires the administration to publish detailed objectives for the negotiations at least 30 days before its formal talks begin.