On the campaign trail, Donald Trump deemed NAFTA “the worst trade deal maybe ever signed anywhere” and pledged to redo the whole accord or scrap it altogether. It turns out, though, that Trump seems pretty content with the status quo.
On Monday the White House released a 17-page summary of its objectives for renegotiating NAFTA, the most concrete indication of Trump’s thinking on transforming the deal to date.
And here’s the surprising thing: There’s very little in the document that represents a radical break from the rules that have governed free trade between Canada, the US, and Mexico since NAFTA took effect in 1994.
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Instead, it’s a document of compromise: It has a few controversial and Trumpian principles in it, but many of its propositions are standard fare for modern free trade agreements.
In fact, a number of its most substantial reforms can actually be traced back to Obama-era negotiations over the Trans-Pacific Partnership — the behemoth free trade deal that Trump torpedoed on his first full working day in the White House. In other words, Trump has ended up embracing some of his free trade-loving predecessor’s values instead of repudiating them.
“This is not a full-throated war cry,” said Phil Levy, a senior fellow at the Chicago Council on Global Affairs and a former senior official on then-President George W. Bush’s Council of Economic Advisers. “The Trump trade team recognizes that they’re under a lot of constraints.”
Those constraints begin with Congress, where lawmakers from both parties have been talking with the White House about NAFTA for months.
Most of the Republican Party is populated by die-hard free traders who wouldn’t be fans of a new version of NAFTA that would upend the norm of virtually zero tariffs — or border taxes — between the US and its North American neighbors. Big business interests have also been pushing for trade to remain as free as possible.
And that’s all to say nothing of the pushback the US will face in talks with Canada and Mexico, who won’t make concessions on fundamental issues of open trade to Trump without a massive fight.
Ultimately, the summary frames renegotiating as something that must (emphasis mine) “benefit the economies and populations of the United States and of our trading partners.” The well-being of America’s trading partners wasn’t something candidate Trump seemed to care much about during the campaign.
There are some plainly Trumpian elements to the document. The most striking is a call to “reduce the trade deficit with the NAFTA countries.” (That means, in plain English, making sure the US isn’t importing much more from Mexico and Canada than it is exporting to them.)
That’s not the kind of rhetoric you see in free trade agreements, which are designed to promote the easy international exchange of goods and services. The pacts are meant to allow countries to protect domestic industries in certain scenarios, but they don’t explicitly state that they want the outcome of these arrangements to result in a perfect balance of trade between the countries.
Trade imbalances can be caused by things like government subsidies to certain industries — a behavior regulated by trade agreements — but they’re primarily a function of a government’s macroeconomic policies, which affect how much a country saves versus how much it invests, as well as movements in its currency’s exchange rate. Trade agreements simply aren’t a natural tool for dealing with the big underlying dynamics that produce deficits.
The big question is how the Trump administration wants to pursue shrinking the US’s trade deficit with Canada and Mexico. When I posed the question to Levy, his answer was pretty straightforward: “There is no mechanism.”
In other words, right now the most radical statement in the Trump renegotiation proposal has a lot of bark, but it doesn’t have a lot of bite.
Another issue that stands out in the document and is far more specific is the proposal for NAFTA to drop the Chapter 19 dispute settlement mechanism, which establishes binational tribunals to help sort out trade practice disputes.
Canada is an advocate of Chapter 19 and insisted on its inclusion in NAFTA as a dispute settlement tool — and the US has lost many cases against it in those panels. Canada is going to fight hard to keep it in.
But overall, the memo isn’t laden with fiercely nationalistic proposals. To the surprise of a number of trade watchers, there aren’t proposals for major overhauls of regulations like Buy America or “rules of origin,” which might’ve been used to boost domestic industry. There’s also no serious prospect of tariffs given that the memo embraces “duty-free market access.”
And many of the proposed changes — such as raising labor and environmental standards, updating trade rules to account for the rise of digital goods and services, and regulating state-owned enterprises — come directly from agreements that were forged during TPP negotiations.
Todd Tucker, a trade expert and fellow at the left-leaning Roosevelt Institute, has gone as far as to call the new NAFTA objectives “TPP with fewer countries.”
This is, of course, all before negotiations between the three countries actually kick off, which could begin as early as mid-August. Depending on how those talks go, these objectives could grow bolder or, more likely, more watered down.
The upshot of all this is that President Trump’s trade policies look much more conventional than you would have thought from listening to him on the campaign trail in 2016.
Source: cnbc economy
Trump promised to transform NAFTA or scrap it. Instead, he’s tweaking it.