Trump Probably Didn’t Intend His Biggest Trade Announcement Yet To Be So Under The Radar
Meet The “USMCA”. Very Similar To The Old NAFTA. But That’s OK. And Still A Huge Accomplishment For Trump
Timing wasn’t great on the announcement of the giant trade deal: in a rare bit of bad luck for the President, when he struck a deal with Mexico by itself at the beginning of last month, he started the clock on a 30-day deadline for Canada to get back in before it went to Congress. And although it probably could’ve been finessed a little, that deadline just happened to land in the heat of the Brett Kavanaugh fight.
So when Trump rolled out into the Rose Garden with his usual coterie of aides and trade negotiators to celebrate his great triumph, most of the reporters in attendance only wanted to ask him about the Supreme Court nominee. Which we think is a little sad. On a day when very little concrete actually happened regarding Kavanaugh, we did a very unscientific survey of several news feeds and found 27 Kavanaugh stories for every 1 about the trade pact. A highly-significant deal that at the very least averted something really nasty from happening with some of our closest allies and biggest trading partners.
Still, Trump will have plenty of time to make hay before the midterms about what he called “the largest trade deal the United States has ever negotiated” at a rally last night in Tennessee. Which of course isn’t true because the Obama-era Trans Pacific Partnership was a trade deal that included the U.S., Canada and Mexico and 9 other countries… (Trump killed that deal and said it was horrible.)
And many stories we came across today were eager to point out that a lot of the concessions Canada ended up making were similar to what it had agreed to in that earlier, broader deal. Including opening its market to more dairy products, which if you listened to Trump at rallies recently, seemed like the only issue with Canada: the “270% on dairy”.
But why not borrow heavily from an agreement everybody already has agreed to once before if you can? It’s not like you’re bringing it back wholesale. (Although it does seem to explain some odd things in the agreement given the Trump administration’s overall priorities, like getting Mexico to agree to better protection for sea turtles.)
The Washington Post has a really good story about the meat of what’s in it, and what it’ll mean to U.S. businesses, workers, farmers and consumers. Here’s the entire text of the deal if you really want to wonk out. Canada’s Maclean’s has an excellent blow-by-blow of the ups and downs of the negotiations, which almost reads like a psychological thriller.
We’ll just leave you with a few observations:
- Trump’s approach to trade is at least somewhat validated by the success of this deal. (Although we’re not sure another President might’ve had just as much success by more gently suggesting it was high time NAFTA was refreshed and updated. But they didn’t, so…) At the same time, some media reports, including this one in Bloomberg concern us a little, because they suggest they’ve figured Trump out, and we can now take any trade threat Trump makes with a grain of salt, or at least as a short-term gambit vs. a committed siege. We’re not so sure it’ll play out that way with China. And Trump’s irritation with Europe — especially German cars which he seems hung up on — hasn’t really been dealt with at all, it’s just been tabled. And South Korea’s new trade pact happened relatively easily because in large part peace negotiations with North Korea are far more important right now than anything else. So South Korean leaders were willing to make some pretty big concessions they might not have otherwise, just to clear the decks and make sure Trump remains focused and on their side.
- Trump has consistently said he prefers smaller deals with just one or two countries to large-scale global partnerships. Partly because he can more effectively hit each country’s individual pressure points that way. And keep “America First”. Not surprisingly, Trump isn’t calling the U.S./Canada/Mexico trade pact NAFTA anymore. Because that was a Clinton thing. (Probably the only thing worse than an Obama thing.) Instead, Trump’s calling it USMCA, a name he says he favors because it reminds him of the U.S. Marine Corps. Really. (Not because he’s a fan of the Village People). While we normally could care less about acronyms, USMCA seems significant to us in another way: it contains a clear hierarchy. America’s first. Mexico’s second. Canada’s third, because it came to the table last… In fact, if we were Canada, the first thing we’d be doing after signing this latest deal is figuring out ways to strengthen our trade ties with Europe and maybe even China, just in case. Just as Japan is reputedly considering…
- The USMCA does do a fair bit to screw over China. Mainly in its requirement that in order to qualify for zero tariffs, any car manufactured in the U.S., Mexico, or Canada must have 75% of its parts made in those countries. Many of those parts currently come from China. This more stringent requirement could, however, also hurt countries that are emerging as production centers for auto makers, like Thailand. And the U.S. has to be very careful about that because China’s trying to fill the vacuum created by Trump’s pulling out of TPP by luring regional countries into an alliance of its own making. It also makes it less likely U.S. automakers will manufacture many cars in North America for export.
- Finally, although Trump trashes globalism all the time, what he’s just done isn’t entirely anti-globalist. One big concession by Mexico is agreeing most auto workers must be paid at least $16 an hour for the cars they make to qualify for zero tariffs. Making it less attractive for U.S. automakers to move plants to Mexico. In some ways, with globalism the market should eventually even out inequality in wages, so that countries produce what they need, what they have (in terms of resources) and what they’re good at, not simply because they have cheap labor. That’s already starting to happen in China. Low costs led many companies to move production there, which then created wealth inside the country, which is raising those costs. So much so that Chinese companies are now looking at places like Africa to outsource because it’s costing them too much to produce in China. When Trump gets Mexico to agree to pay workers more, he may be helping — in a small way — to speed that process up.