What’s Wrong with a NAFTA Sunset Clause?

The U.S. and Canada are now engaging in a trade war. The U.S. government will slap tariffs on aluminum and steel imports from Ottawa, while the Canadian government will retaliate with levies on $16.6 billion worth of American goods, ranging from toilet paper to bourbon to soup. As both leaders commit economic suicide with 18th-century trade practices, the average American and Canadian will bear the brunt of their bravado.

Despite the recent inane protectionist measures endorsed by U.S. trade advisor Peter Navarro, it appears that  Canadian Prime Minister Justin Trudeau is primarily to blame for the latest turn of events.

Speaking alongside Canadian Foreign Affairs Minister Chrystia Freeland to outline his nation’s response to the “totally unacceptable” tariffs, Trudeau explained that President Donald Trump and his administration insisted on a five-year “sunset clause” in a renegotiated North American Free Trade Agreement (NAFTA).

Prior to meeting with the president at the White House, says Trudeau, Vice President Mike Pence noted that the condition for the Oval Office powwow would be the sunset clause. The prime minister was upset and refused to agree to the demands, leading to cancellations between the men.

Trudeau told reporters:

"I had to agree to a sunset clause in NAFTA, which is to say every five years, NAFTA would come to an end unless the parties decided to renew it, which is completely unacceptable to us.

So I answered that, unfortunately, if that was a precondition to our visit, I was unable to accept — and so we did not go to Washington for that day of negotiations."

Not only is Trudeau affecting Canadian consumers with retaliatory tactics – it’s typically better to ignore tariffs from other states – he risks damaging relations with the world’s biggest economy because of a legitimate and sensible caveat.

A Sunset Clause Would Benefit Members

The global economy has dramatically changed since NAFTA was first proposed. When the trade pact was signed into law, personal computers were just getting started, the Internet was in its infancy period, and many goods and services had yet to be invented or put to market.

Trump’s fascination with mercantilism is questionable, but he was right to reopen NAFTA. A lot has happened in the last two decades and passages of the agreement were antiquated.

So, what’s to say that the international market doesn’t experience more innovations, new trends, and unforeseen geopolitical tensions in the next five years? Thanks to our technological advancements and hyper-connectivity, economic progress is ubiquitous and fast-paced. No day, month, or year is the same in the international marketplace.

One of the main drawbacks of the Trans-Pacific Partnership  (TPP) was that as soon as you became a signatory, your membership into the organization was everlasting. Like a California cult, you could not escape.

Yes, it is better to not have government-managed trade at all, such as NAFTA, CAFTA, or TPP, but this is the reality we live in. Politicians and bureaucrats think they need to manage commerce to protect special interests and aid their crony friends. That said, if the world needs to endure worldwide trade that involves governments, perhaps it would be better to have a sunset clause rather than a permanent deal in place that you cannot flee or revise.

It was fatuous for Prime Minister Trudeau to put the kibosh on a meeting with President Trump because he doesn’t want a beneficial sunset arrangement.

Let the Trade War Begin

After the recent wave of announcements, there are a lot of questions to mull over.

Will Trump scrap NAFTA? Will a variety of goods and services become more expensive for Americans, as steel has this year? Will Freeland start crying again to get her way? Will Trudeau lose support ahead of next year’s federal election? Will genuine government-free trade hopefully come out of these events?

In the end, if President Trump wants to ditch NAFTA, then all the power to him. He would garner the support from a lot of Americans, including libertarians and free market advocates, should he abandon the trade pact and replace it with nothing. This way, an entrepreneur from Winnipeg can do business with another entrepreneur from Tijuana, who can then sell to consumers in Salt Lake City. No interfering government, no busybody bureaucrat, no influence peddling special interests. Just commerce for all.

What do you think of the trade war between the U.S. and Canada? Let us know in the comments section!