Free Trade

Pence Says North American Trade Deal Will Boost U.S. Automaking Jobs. Don't Believe Him.

The United States-Mexico-Canada Agreement includes a handful of protectionist measures that would likely slow the U.S. economy and harm American automakers.

|

The Trump administration is ramping up pressure on Congress to pass a rewritten version of the North American Free Trade Agreement (NAFTA) before the end of the year, but the new deal is likely promising more than it will actually deliver.

In a speech to conservative policymakers and members of Congress on Tuesday, Vice President Mike Pence argued that Congress should pass Trump's much-ballyhooed United States-Mexico-Canada Agreement (USMCA) because the new trade deal will boost the U.S. economy. Specifically, Pence singled out automakers as one of the big winners under the proposed trade deal, which still has to be ratified by all three nations before it takes effect.

Passage of the USMCA would "make sure there's more autoworkers' jobs for decades to come," Pence said Tuesday during an event hosted by the Heritage Foundation, a conservative think tank.

Pence has become the administration's primary cheerleader for the trade deal—both at public events like the one on Tuesday and others hosted over the past few months, and in private as the administration tries to sway members of Congress. Promising that the USMCA will create more auto-making jobs has been a central part of Pence's message. The White House has also been touting a more general figure, based on an analysis by the U.S. International Trade Commission (ITC), showing that passage of the USMCA will boost growth by 0.3 percent annually.

Provisions of the trade deal "will eliminate the historic incentive to move manufacturing jobs out of the United States of America," Pence said Tuesday, while promising that the USMCA "levels the playing field for American workers and American jobs."

But Pence is overselling what the USMCA would do. In fact, the new trade deal includes a handful of protectionist measures that will likely slow the U.S. economy in general and harm American automakers specifically. At the same time, the ITC analysis of the trade deal is likely overselling the potential benefits.

"On balance, the pact would hurt rather than help the U.S. economy," wrote Jeffrey J. Schott, a senior fellow at the Peterson Institute for International Economics, a pro-trade think tank.

Rather than boosting growth by 0.3 percent, the ITC analysis actually projects a 0.12 percent decline in growth, Schott argued, because it gives the USMCA credit for some developments—like new rules aimed at "reducing uncertainty in policies on data, e-commerce, and intellectual property rights"—that are already the de facto standard for trade between the three North American nations.

A separate analysis by the C.D. Howe Institute, a Canadian think tank, also concluded that the "negative elements of [USMCA] outweigh the positives and will result in lower real GDP and welfare for all three" countries involved in the deal.

Many of those "negative elements" have to do with new rules the USMCA would impose on automobile manufacturing across North America.

Beginning in 2020, when the USMCA is supposed to take effect, cars and trucks must have 75 percent of their component parts manufactured in North America in order to move across borders tariff-free. That's a significant increase from the 62.5 percent threshold required under NAFTA. Additionally, 40 percent of all component parts would have to be built by workers earning at least $16 an hour—effectively creating a continent-wide minimum wage that will discourage automakers from building cars in North America.

Both these "rules of origin" requirements and the new minimum wage mandates might undercut the Mexican auto industry, which is a key part of supply chains that crisscross both sides of the U.S.-Mexico border. The Mexican government estimates that about 30 percent of cars currently made there would not meet the new requirements.

Instead of complying with the new regulations to trade duty-free, it's likely that carmakers would simply pay the higher tariffs and pass those costs along to consumers. Indeed, even the Trump's administration's own ITC report says that consumer prices on cars in the U.S. would increase due to the USMCA—and that an estimated 140,000 fewer vehicles would be sold, while auto manufacturing jobs would decline by about 1,500.

If that's true, however, one might wonder why groups like the American Automotive Policy Council, an auto industry group, have voiced support for congressional approval of the USMCA.

The answer is that they are likely more worried about what could happen if the USMCA doesn't pass. Trump came into office promising to tear-up NAFTA, and passage of the USMCA seems like it might be the best way to avoid that worse-case scenario.

If the USMCA isn't as great as Pence makes it sound, it is at least better than the economic damage that would be done to all three North American countries if NAFTA were dissolved without a replacement. That's the unspoken part of the Trump administration's pitch for Congress to pass the USMCA: refusing to do so might court chaos.

"Auto companies opposed the USMCA auto provisions during the trade negotiations, though they accepted the final deal for fear that Trump would implement his oft-repeated threat to pull out of NAFTA," observed Schott. "And that's why Trump needs to raise U.S. tariffs to prevent increased car imports and why he is using the excuse of a threat to national security…to block foreign shipments to the U.S. market."

"Simply put," Schott concluded, "Trump needs to protect U.S. producers against the damage done by his own trade pact."

NEXT: E-Cigarette Restrictions Raise a Question: Can Governors Unilaterally Ban Products They Don't Like?

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. “The United States-Mexico-Canada Agreement includes a handful of protectionist measures”

    …so it’s similar to NAFTA which everybody pretended was “free trade”? Got it.

    1. NAFTA was freer trade than what came before, and freer than USMCA.

      What do you propose instead?

      If USMCA is what Trump gets from all his “negotiating”, sure can’t expect anything better from his China tantrums.

      1. Was it free trade?

        No, NAFTA most assuredly was not.

        Is it better than this? I would say likely not.

        1. Did I say NAFTA was free trade?

      2. If you were honest youd say we dont fully know the outcome of uscma and wont for years. NAFTA didn’t end up as advertised. Business will adapt to the new regulations and it will be years until we know if trade is more or less even or free. Let’s also not pretend you, or boehm, has read every regulation in the agreement. Just makes you look stupid.

        1. And if you were honest … but then we might as well ask for AOC to be honest.

          1. “Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf
            September.17.2019 at 6:15 pm
            [I have no response]”

            1. Thanks for the clutter, asshole! What make you think that you are SOOOO important that you have to let us know that you have NOTHING to say? Even if it is just a snarky way to snark about what you think is some other snark?

              If you have something to say, say it! If not… Don’t bother!

              Here’s what I have to say: Obama: “You can keep your doctor”. Big fat lie.

              Trump and Pence: “You can keep your car-manufacturing jobs.” Big fat lie. See details in article above.

              You and JesseAZ are automatons that detest any lies from “D” party, but immediately suck “R” party’s balls when “R” party treis to pass similar lies.

      3. Just out of curiosity, what were you expecting out of The Great Negotiator in his face-to-face deal-making with the Taliban at Camp David? You know Trump is convinced he is the smartest man in the world, he knows more about the military than the generals and more about diplomacy than the diplomats and more about making great deals than any person in the history of the universe and therefore he can accomplish more in a few hours of talking than all the “experts” can accomplish in months and months of meetings and negotiations.

        And yet he’s demonstrably ignorant on a plethora of subjects – but who knew healthcare could be so complicated and who knew the Chinese were liars and cheaters and who knew the Taliban were the sort of people that would kill innocent people right in the middle of treaty negotiations? EVERYBODY, you jackass. Everybody knew these things, you were the only one surprised to learn simple facts of common knowledge.

        1. “You know Trump is convinced he is the smartest man in the world, he knows more about the military than the generals and more about diplomacy than the diplomats and more about making great deals than any person in the history of the universe and therefore he can accomplish more in a few hours of talking than all the “experts” can accomplish in months and months of meetings and negotiations.”

          Why are you describing Obama yet writing Trump’s name?

          “Everybody knew these things, you were the only one surprised to learn simple facts of common knowledge.”

          Again, describing Obama while writing about Trump. Odd.

          1. You’re stupid even for a Trump-Tard.

            1. Gosh Kiddie Raper, both you AND Pedo Jeffy responding to the same comment.

              Do you two hang out on the same NAMBLA chat room?

          2. https://www.washingtonpost.com/news/the-fix/wp/2016/10/04/17-issues-that-donald-trump-knows-better-than-anyone-else-according-to-donald-trump/

            Trump:

            “I know more about renewables than any human being on Earth.”

            “I understand social media. I understand the power of Twitter. I understand the power of Facebook maybe better than almost anybody, based on my results, right?”

            “Nobody knows more about debt. I’m like the king. I love debt.”

            “”I understand money better than anybody.”

            “I think nobody knows the system better than I do.”

            “I know more about contributions than anybody.”

            “Nobody knows more about trade than me.”

            “Nobody knows jobs like I do! ”

            “Nobody in the history of this country has ever known so much about infrastructure as Donald Trump.”

            “There’s nobody bigger or better at the military than I am.”

            “I know more about ISIS [the Islamic State militant group] than the generals do. Believe me.”

            “There is nobody who understands the horror of nuclear more than me.”

            “Because nobody knows the system better than me. I know the H1B. I know the H2B. Nobody knows it better than me.”

            1. And don’t forget the other things he is expert in.

              Technology: I know tech better than anyone, & technology.” —December 21, 2018, Twitter

              Forest fires : There is no reason for these massive, deadly and costly forest fires in California except that forest management is so poor. Billions of dollars are given each year, with so many lives lost, all because of gross mismanagement of the forests. Remedy now, or no more Fed payments!” —November 10, 2018, Twitter

              Airplane design: Airplanes are becoming far too complex to fly. Pilots are no longer needed, but rather computer scientists from MIT

              You can go on an on, catapults on aircraft carriers, the Kentucky Derby…

              When it comes to geniuses the man is a regular Wyle E Coyote.

              1. But you know, anyone claiming that Trump says he’s the smartest man on the planet is just echoing Obama.

                1. He is the smartest man on earth. Prove otherwise!!!!!!!!!!!!!

                  1. He’s also the most genetically and intellectually Superior Being on the planet! Expect the Trump-cloning machines to crank up any minute now!

                    Did y’all know that about 1 in 10 men in certain areas of Asia, have the “Y” chromosome of Genghis Khan? And 1 in 200 planet-wide? Use this search-string in quotes:
                    “1 in 200 men direct descendants of Genghis Khan”
                    WHY is this relevant, you ask?
                    Well, ’cause The Donald has “the winning gene”, and wants to out-do this low-brow Genghis dude!! The Donald-breeding/cloning farms “over there” (in Afghanistanistanistanistan) are gonna fire up soon, I’m a tellin ‘ ya!!!
                    If’n ye do NOT believe me about the superiority of “The Donald’s” genes, look at the following quotes from that same Donald!!!
                    Quotes from The Donald in the “Anti Gravity” column in August 2017 “Scientific American” magazine follow:
                    “I have great genes and all that stuff, which I’m a believer in”,
                    “God helped me by giving me a certain brain”,
                    “I have a very, very high aptitude”,
                    “Maybe it’s just something you have. You know, you have the winning gene.”
                    Google the quotes, they are real…

                2. Keep forgetting…Obama actually WAS smarter than anybody else. Just ACTED like an idiot so we wouldn’t feel bad.

              2. “Forest fires : There is no reason for these massive, deadly and costly forest fires in California except that forest management is so poor. Billions of dollars are given each year, with so many lives lost, all because of gross mismanagement of the forests. Remedy now, or no more Fed payments!” —November 10, 2018, Twitter”

                Also a poor example if you’re not dumb. But you are. So good example.

            2. Poor little Jeffy doesn’t even know what’s going on. Bless your heart, you think Trump thinks he knows more about renewables than anyone.

              1. Let me guess. Does your explanation of Trump’s braggadocio involve the phrase “3-D chess”?

                1. Beat me to it. Good for you. But no, my explanation of Trumps braggadocio is that Trump is braggadocios.

              2. (prepares himself for some long “philosophical” post from Little Jeffy about why his post of random quotes from Trump is “philosophical”.

                1. Btw in that cancel culture article from yesterday you said I was claiming your 2 statements were contradictions or whatever.

                  Not at all, they went together just fine. As someone who is not an individualist, but is you.

            3. ““I understand social media. I understand the power of Twitter. I understand the power of Facebook maybe better than almost anybody, based on my results, right?”

              This is a pretty stupid example on your part. Then again maybe I’m the idiot and he didn’t use social media to become president. But, eh, no biggy.

              1. A shallow idiot used scapegoats (illegal sub-humans and non-Americans) and social media to persuade other shallow idiots to vote for him. Now we have an ever-growing Trumptatorship, still selling us this lie: “America Great, America #1, all other nations suck hind titty. They will never notice that we treat them like shit, and they will never notice enough, to shit right back on us, in turn.” So now we have trade wars, possibly moving right on to shooting wars. Trade wars do NOT make friends for us.
                A shallow idiot used scapegoats (Jews, Gypsies, gays, Commies, etc.) and social media to persuade other shallow idiots to vote for him. The “social media” was inflamed, enraged, passionate speeches. Then Hitler gained first votes, and then a dictatorship.
                So Der TrumpfenFuhrer and Hitler both were / are “social media experts”. Is that supposed to help me sleep better at night?

                1. ““America Great, America #1, all other nations suck hind titty.”

                  The better country is…?

                  “A shallow idiot used scapegoats (Jews, Gypsies, gays, Commies, etc.) and social media to persuade other shallow idiots to vote for him.”

                  “SQRSLY, where on the doll did Trump touch you? You can tell us. It’s safe here.”

                  Good lord you’re unhinged.

                  1. The better country was the USA before Trump. The better country will be the USA after Trump, if we don’t all get Trumpled into the muck and mire before then.

                    Other better countries are New Zealand, Australia, Canada, etc., each in their own different ways. Not a ONE of them makes me get a prescription before I blow on a cheap plastic flute, for example!

                    Before you ask…
                    Yes, I would move to another, better nation, except for the moving costs, and the USA’s world’s-highest renounce-your-citizenship exit fees!

  2. This is a bit off topic, so please bear with me.
    I’ve read where employees of GM are striking for more $ and for better medical benefits.
    Isn’t this one of the reasons why Detroit became a shit hole it is today?

    1. Jinx cooked the books.

    2. One of the reasons, yes.

      Coleman Young might be another, but I’m sure life-long leftist race-baiting mayors and shithole cities going together like peanut butter and jelly is entirely coincidental.

  3. I’m a little confused here – I thought Trump canceled NAFTA right after taking office and the new TrumpTrade™ was already making America great. If it’s not the winning that’s making me sick, I’d sure like to know what is.

    Maybe it’s the vaping epidemic that’s killing so many elementary school children.

  4. Sooo much winning……..

  5. Someone should ask Pence why *we* should care?

    If I’m not one of the people getting that job then its just an extra cost to me because the price of the finished product will be higher due to higher labor costs.

    I didn’t know the Mexican making the car before, I don’t know the American making it now. And its all done in a different state – across a border – and borders are important.

    1. You should care because you’re an American. “Ask not what your country can do for you, ask what you can do for your country.” One of the most noble and inspiring sentiments ever spoken, because it cut straight to the heart of what constitutes a “good” existence. The individual exists to serve the needs of the State and the greatest glory and honor goes to he who sacrifices most for the greater good of the collective. You are a low and shameful creature who thinks of your own self-interest rather than the needs of your country, the most mean and selfish of men – an individualist.


  6. 75 percent of…component parts [must be] manufactured in North America in order to move across borders tariff-free. That’s a significant increase from the 62.5 percent threshold required under NAFTA.

    So right now today, if 62.5% of the components are made in the U.S., this means it would be tariff free? I’m unclear on that point, and can’t find a source that explicit says they’re tariff free past that point at the moment. I’m assuming that’s the case since the change isn’t noted anywhere on that point, and it seems important enough to be noted if it was changing. Either way, this is a path for them to pay zero tariffs, yes?

    40 percent of all component parts would have to be built by workers earning at least $16 an hour

    Obviously and clearly a mechanism to remove the cheap-as-fuck labor rate that other countries enjoy as a competitive advantage. For reference: Mexican Manufacturing Wages

    Wages in Manufacturing in Mexico remained unchanged at 2.60 USD/Hour in June from 2.60 USD/Hour in May of 2019.

    Wages in Manufacturing in the United States increased to 22.19 USD/Hour in August from 22.13 USD/Hour in July of 2019.

    Gee, that seems like a pretty big advantage.

    about 30 percent of cars currently made there would not meet the new requirements.

    …but that can change instantly with Mexican labor legislation.

    Note that I’m not really a huge fan of managed trade deals, but it’s hard to take the bleating seriously when it’s not that big of a change. Trumps wrong on trade, as usual, but he’s hardly unique in that regard if anyone’s paying attention.

    Since raising the American minimum wage to $15 would be a disaster, it’s somewhat understandable that Trump might want to close that gap on the trade partners side. It would help mitigate the inevitable disaster of a higher American wage. And make no mistake, the writing is on the wall for an obscene minimum wage hike.

    1. Oh, and I thought it was odd there’s no mention of the actual tariff rate increases and it seems there’s also a bottomless well of exemptions for Canada and Mexico that go unmentioned here.

      There’s also this bit here, pulled from another source.

      Another unique difference between the two is the sunset clause. With NAFTA, there is no automatic sunset clause or a predetermined ending date to the agreement. Any three countries can withdraw with six months’ notice. However, USMCA is only meant to last for 16 years. After six years, the three countries will get together again to negotiate and fix any problems. The possibility of an extension will also be discussed.

      That right there is a pretty good idea, but maybe I’m fishing for pearls in the pigs yard here.

    2. Trumps wrong on trade, as usual, but he’s hardly unique in that regard if anyone’s paying attention.

      You begin to realize just how… European he is when you look at how other countries work their trade sectors.

    3. Trump cannot do anything about states setting absurdly high minimum wages. The Lefties are trying to buy votes before their more regional economies shudder from these higher minimum wages.

  7. DONT BELIVE HIS LIES!!!!!!11!1!1!!1!1!1!!

  8. Pence Says North American Trade Deal Will Boost U.S. Automaking Jobs. Don’t Believe Him.
    The United States-Mexico-Canada Agreement includes a handful of protectionist measures that would likely slow the U.S. economy and harm American automakers.

    Pre-Trump protectionists measures have had no effect on the US economy though.
    -Eric Boehm

  9. Free Trade? Any examples of that anywhere? Anytime I read something like “car makers will simply pay the higher duties and pass it on to the consumer” I know the writer only understands theoretical economics and has probably never ran a business or been involved in one at a high enough level to understand how markets and pricing work.

  10. The Globalist USMCA
    United Nations – Trump: “We will never surrender America’s sovereignty to an unelected, unaccountable, global bureaucracy. America is governed by Americans. We reject the ideology of globalism, and we embrace the doctrine of patriotism.” But then he followed up by negating everything he previously stated when he said, “The United States is committed to making the United Nations more effective.” Evidently, he doesn’t know that the damned United Nations was expressly brought into existence to destroy America, her culture, her sovereignty, and her greatness. The United Nations wants to bring us down to the level of a third world country on the same playing field as other nations.
    The Council on Foreign Relations (CFR) which is the deepest part of the Deep State and the main initiator of the United Nations. The CFR is known to be the dagger pointed at the heart of America. (See “The Shadows of Power,” by James Perloff).

    1. If the USMCA becomes law, it will bring into effect, through the back door – the Law of the Sea Treaty, endorsed by both Clinton and Bush, which was never ratified by the United States. It was rejected not just for this reason, but because it contained many other damages lethal to American independence and autonomy.
      When the USMCA is mentioned in the media, usually what you’ll hear is couched in terms that imply the trade agreement will be a boost to our economy, just as NAFTA was promoted as a boon to our economy, but resulted in our manufacturing going to Mexico.
      The USMCA is being sold to the people as a marvelous replacement for NAFTA, but is instead an even greater betrayal of our country. This treaty is about diminishing America’s sovereignty, independence and liberty. The end result will be the very loss of our nation.
      http://newswithviews.com/the-usmca-in-a-nutshell/

Please to post comments