USMCA Deal Signed
President Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Pena Nieto signed a new NAFTA agreement on Friday. Trump calls the NAFTA replacement USMCA, the United States-Mexico-Canada Agreement.
Just signed one of the most important, and largest, Trade Deals in U.S. and World History. The United States, Mexico and Canada worked so well together in crafting this great document. The terrible NAFTA will soon be gone. The USMCA will be fantastic for all!
— Donald J. Trump (@realDonaldTrump) November 30, 2018
The deal is signed, but it still needs to be ratified by all three governments.
USMCA or Bust
On Saturday, Trump said he would notify Congress in the ‘near future’ that he will Terminate NAFTA
Trump will give lawmakers six months to approve the treaty. If not, we go back to old WTA rules.
“Just so you understand, when I do that – if for any reason we’re unable to make a deal because of Congress then Congress will have a choice” of the new deal or returning to trade rules from before 1994 when NAFTA took effect, he said.
60 Days Given 105 Needed
The International Trade Commission (ITC) is investigating the Likely Impact of USMCA.
“This report, which will be made public, is due to the President and Congress no more than 105 days after the President signs the agreement.”
Congress is expected to wait until the ITC report is issued before voting on the new agreement. In fact, Senate majority leader Mitch McConnell recently told Bloomberg in an interview that the vote on USMCA will be a “next-year issue.”
Jobs Lost
Although the ITC is not required to analyze the impact of withdrawing from NAFTA, there is at least one study prepared by Trade Partnership Worldwide that estimates that withdrawing from NAFTA could cost 1.8 million jobs in the first year.
Bragging Rights
Vox explains the USMCA Deal.
Trump promised to renegotiate NAFTA — and he did. But it’s not exactly the brand new deal he says it is, since the core of NAFTA remains intact. The new deal will also likely do little to address Trump’s big pet peeve about trade deficits.
Unlike NAFTA, the new deal allows each country to sanction the others for labor violations that impact trade. It’s a complex, multi-step process modeled after similar protections in the Trans-Pacific Partnership (TPP), a multinational trade deal that Trump pulled the United States out of after taking office.
But the labor provisions also offer certain complications — particularly how to enforce the $16-an-hour wage rule. “That appears to be a bit of a nightmare in terms of administration and red tape,” says Duncan Wood, the director of the Mexico Institute at the Wilson Center.
“They have fixed some of the problems with NAFTA, they have brought it up to date, they have expanded the scope of the agreement, but they have in no way fixed what seemed to be the fundamental problems of NAFTA by President Trump, or the kinds of things he identified during his election campaign in 2016,” Wood said.
Mostly Minor Changes
USMC will not fix what it set out to do. US dairy farmers will have more access to Canada is the big trade win.
Some protections for US industries will be reduced by the agreement, on purpose. Trump feels that if he puts US businesses at the mercy of the Mexican court system they may be less inclined to move work there.
And the deal will likely increase the cost of cars in the US.
Hooray?
Zombie NAFTA
Meanwhile, inquiring minds may be wondering if Trump can really do what he says, terminate NAFTA by decree.
Six experts address the question: Can Congress Stop Trump from Eliminating NAFTA.
- Todd Tucker, fellow, the Roosevelt Institute: Congress can’t block Trump from withdrawing, but here’s the problem: Much of what is in NAFTA is implemented by congressional statute. Trump doesn’t get to change that without congressional support. So, in this scenario, we would have a Zombie NAFTA, where America’s formal participation is dead, but our domestic law would still treat Canadian and Mexican products as if it weren’t.
- Mickey Kantor, US secretary of Commerce and Trade Representative under the Clinton administration: Most people believe there is no answer to this question, but the province of international trade under the Constitution is under the Congress, not under the executive. But it appears to me that even if President Trump withdraws that it may not be effective because it’s subject to law — Congress ratified the NAFTA.
- Phil Levy, senior economist for trade on President George W. Bush’s Council of Economic Advisers: As things stand, there is some ambiguity, because the agreement itself allows for countries to withdraw, and the president would be the one to initiate such a withdrawal. But a president should not be able to revoke a law unilaterally. Further, the Constitution grants Congress, not the president, the power “To regulate Commerce with foreign Nations.”
- Douglas Irwin, economic historian, Dartmouth College: There is little precedent for such an action, so we really don’t know what Congress intended in the withdrawal authority. What is clear is that any presidential determination to leave NAFTA would be immediately challenged in the courts and some members of Congress will fiercely resist it.
Questionable Ice
The other opinions were variations of those points.
The consensus appears to be that Trump would be on questionable ice.
But I like Todd Tucker’s assessment. Even IF Trump can revoke the treaty, he cannot revoke the laws passed relating to the treaty.
Conclusions
- Trump is blowing both hot and questionable air.
- And he actually did little to improve what he called the “worst trade deal ever”.
Mike “Mish” Shedlock
Trump has no comprehension whatsoever of what is in that agreement.
Can’t get enough of that shoddy massively marked up chinese junk at walmart and dollar general!
Trump’s new trade deal is INCOMPETENT.
It is only slightly better than NAFTA but it still allows massive wage arbitrage because only 40% of cars are needed to be made with workers earning a good wage so US car companies can make 40% of their cars in USA and make 60% of their cars in Mexico paying 3 dollars an hour.
GM decided to close several factories because of this.
Another reason GM closed the factories is that since Trump put the steel tariffs in place steel in USA got more expensive and since steel in Mexico is cheaper and cars can be brought to USA tariff free it makes no sense to make many cars in USA.
If one puts tariffs on materials one also needs to put similar tariffs on products made from those materials.
Trump failed this basic logic test.
There needs to be tariffs on cars from everywhere including Mexico if Trump wants to keep jobs making products from steel in USA after the steel tariffs.
Currently SUV manufacturing is profitable in USA since there are 25% tariffs on foreign SUV’s.
The tariff on regular cars is just 2.5%.
Even EU has 10% tariffs on US made cars so Trump is incompetent and his advisors are also incompetent that they have not noticed this.
Tariffs on regular cars should be immediately hiked to 10% and there should be also additional tariffs on the value of steel used in a car at the same percentage as steel tariffs since steel is now cheaper in EU and Mexico since Chinese are overproducing steel massively and dumping it to keep Chinese workers employed and Chinese communists in power.
Third Trump made a huge mistake repealing CAFE standard:
““I think it all started when Trump repealed the [Corporate Average Fuel Economy standard],” she told the outlet. “When Trump repealed the CAFE standard, that gave GM more of an incentive to get rid of the Chevy Cruze and do this restructuring.”
“The CAFE standard meant that you could produce small cars that are energy-efficient and that would kind of balance out the building of big trucks and gas guzzlers,” Senters added. “Building the Cruze meant that GM could also build many big trucks and still meet fuel efficiency standards.””
With no CAFE standard GM has no incentive to produce any small cars in USA since in Mexico they can build them paying 3 dollars and hour and using cheap steel since Chinese dump it at cost and even below cost from China government owned steel mills.
Trump needs to fire the idiots who negotiated the NAFTA replacement trade deal and start over.
Also Trump needs to put tariffs on products made from steel since US manufacturing is uncompetitive also from steel price point thanks to Trump’s steel tariffs.
Also Trump needs to bring back the CAFE standard.
Also regular cars tariffs need to be raised from current 2.5% at least to the 10% that EU is tariffing imported cars to protect German auto industry and French auto industry.
Also there should be wage parity tariffs as follows:
If wages are lower than 50% of US wages then the difference needs to be tariffed per worker hours per product so for example if it takes 100 man hours of work to build one car and car factory in Mexico pays 3 dollars and hour and US wages are on average around 30 dollars that means the difference between the 3 dollar and 50% of 30 dollars is 12 dollars an hour so 100 hours times 12 is 1200 dollars so 1200 dollars of tariffs on Mexican made cars.
This will also incentivize Mexican factories to pay more thereby improving Mexican economy while making moving production not so attractive so jobs do not escape from USA as much.