If President Donald Trump and his trade team thought everyone in Washington would be drinking a carton of Canadian milk and eating tacos while listening to the sweet sounds of Artie Shaw after House Democrats gave the thumbs up to his United States-Mexico-Canada Agreement (USMCA), then we have 25% of the Canadian dairy market to sell. It turns out a few progressives and a Republican are disappointed by the update to the North American Free Trade Agreement (NAFTA). Even a few Mexican officials are perturbed by some language in the multilateral arrangement. But to support the economy and facilitate commerce, a crony deal is better than no deal, right?
It’s Fun to Stay at the USMCA
Can the White House overcome some of the latest hiccups in the USMCA? Or will administration officials need to employ some damage control?
Mexico is concerned that American attaches effectively would serve as labor inspectors to ensure that its government adheres to labor standards outlined in the trade agreement. Mexican Deputy Foreign Minister to North America Jesus Seade stated that his country would “never accept any measure that would see inspectors disguised for a simple reason: Mexican law prohibits it.” However, Foreign Minister Marcelo Ebrard noted that the disagreement would not affect the pact because officials can choose to permit or deny these attaches.
Because the USMCA soon heads for a vote in the House, it is too late to revise any language in the deal. But that would be unnecessary as U.S. Trade Representative Robert Lighthizer wrote in a letter to Seade that “personnel will not be ‘labor inspectors’ and will abide by all relevant Mexican laws.”
Some House Democrats are still looking for guarantees that labor standards will be enforced. Representative Bill Pascrell (D-NJ) revealed that he does not trust what is written in the USMCA. Rep. Rosa DeLauro (D-CT) is worried about the continuation of outsourcing, which makes her undecided on supporting the new NAFTA deal. Even a Republican is not enthusiastic about it. Speaking on NBC News’ Meet the Press, Senator Pat Toomey (R-PA) asserted that Trump and the GOP capitulated to House Speaker Nancy Pelosi (D-CA) and AFL-CIO President Richard Trumka, whose organization endorsed the arrangement. He pointed out that the accord strays from genuine free trade, echoing previous remarks that the USMCA is worse than NAFTA. “So unfortunately, USMCA is an exercise through all kinds of new provisions to diminish trade, and that’s why I hope Republicans reconsider this. We have historically recognized we’re all better off with more open markets,” Toomey said. “It’s a complete capitulation to Pelosi and Trumka.”
While there will be a few outliers, the USMCA is expected to gain bipartisan support when it is taken up for a vote.
Deal or No Deal?
The new USMCA does not really differ much from the quarter-century-old NAFTA, except that it offers even more progressive goodies that Republicans claim they oppose. Some of the new provisions include tighter origin rules for auto manufacturing, a paucity of competition in the U.S. government procurement market, no new access to foreign investors in protected industries, stronger environmental laws, and weakened protections for pharmaceutical patents, though there may be some dispute among free-trade advocates regarding this issue.
When Pelosi and the AFL-CIO endorse a trade agreement, you know it is bad news. Suffice it to say, if a Democratic president were to ratify a comparable deal, Republicans would shriek to the heavens about how this is socialism. So, Toomey is right to be skeptical, and his arguments are legitimate for anybody who is an advocate of free trade.
The key question is: Is crony trade better than no trade at all?
Let’s examine two scenarios. The first is a trade agreement that allows for only one pharmaceutical company to deliver a type of painkiller, two businesses to sell tires, and one corporation to export bananas. The second situation does not involve trade at all; the borders are shut down and global commerce is frozen because politicians have refused to move ahead with any accord.
Which one would you prefer? And, yes, the best scenario is when no government or central planning body is involved in bilateral or multilateral trade. The free trade utopia of an American businessman buying 10,000 pencils from a Mexican supplier for $1,000 and then selling those same writing instruments back in the United States for $2,000 would be a dream come true. Or how about an American farmer selling his dairy in supermarkets across the Great White North? That is a free market fetishist’s fantasy.
But that is about as likely to happen as billionaire Tom Steyer winning the Democratic nomination.
A Duty to Pass USMCA?
Trump has repeatedly claimed that NAFTA is the worst trade deal in U.S. history. If he believes this, then the USMCA must be the second-worst trade pact of all time. Had the president eliminated tariffs, encouraged Ottawa to scrap supply management, and ignored the Democrats’ efforts to dictate to Mexico how to govern, maybe it would be a significant improvement. Chief White House Economic Adviser Larry Kudlow believes the USMCA and the U.S.-China phase one will add 0.5% to gross domestic product. He is probably right, so you can say goodbye to any criticism by Democrats and Republicans who will quarrel about who should take full credit for it come election season.
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