Free Trade

3 Things To Know About the 'New NAFTA' That Begins Today

The deal will affect more than $1 trillion in annual trade between the U.S. and its two neighbors.

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A little more than 26 years after it ushered in a new era of continent-wide trade, the North American Free Trade Agreement (NAFTA) is no more. Starting today, the United States-Mexico-Canada Agreement (USMCA) takes over.

The new trade deal is the result of more than two years of negotiation among the leaders of the three countries. It is the most substantial accomplishment of President Donald Trump's trade policies, but it also demonstrates the extent to which Trump's unorthodox views on trade have been successfully tempered. After taking office with a vow to tear up NAFTA, Trump ultimately settled for a minor revision to the status quo.

Still, the USMCA is a big deal. Canada and Mexico are the top recipients of U.S. exports. The United States imports more goods from those two countries than anywhere else except China. The deal will affect more than $1 trillion in annual trade between the U.S. and its two neighbors.

Here are three big things to know about the USMCA.

  1. A small retreat for free trade and a win for protectionism.

Although Trump's supporters sometimes claim that the president is actually pursuing a radical free-trade agenda and only using protectionist tactics to achieve it, the USMCA is strong evidence that Trump would prefer to see more barriers to trade.

For example, the administration pushed for the inclusion of stricter rules that make it more difficult for cars and car parts to cross national borders duty-free. Under the USMCA, 75 percent of the component parts of vehicles would have to be produced in North America to avoid tariffs, and 40 percent would have to be built by workers earning at least $16 an hour—effectively putting a minimum wage on Mexican manufacturing plants with lower wages.

Rather than completely reshaping their supply chains, automobile manufactures are likely to just pay the tariffs. As a result, the International Trade Commission (ITC) estimates that consumer prices on cars in the U.S. will increase, resulting in an estimated 140,000 fewer vehicles sold.

The USMCA also gives Trump (and future presidents) greater powers to impose new tariffs against Canada and Mexico. Already, the Trump administration is looking to do exactly that in response to claims that aluminum imported from Canada have increased this year (even though imports of the metal are still below 2017 levels and well within historical norms). But isn't the point of a trade deal to encourage more trade?

All trade deals are managed trade, of course, but relative to the standards set by NAFTA, the USMCA seems like a step backward.

2. Crucial updates to protect the flow of data across North American borders.

When NAFTA launched in 1994, there were a few dozen websites online. Today there are…a lot more. Importantly, the USMCA includes a new chapter of provisions aimed at digital trade, ensuring that real-world international borders won't start popping up in cyberspace.

For example, the USMCA bans the creation of so-called "data-localization requirements"—rules that limit how much traffic can flow from a data center in one country to servers in another. The new agreement also prohibits tariffs on data transfers, and it includes a provision shielding tech companies from liability for content, similar to the protections offered by Section 230 of the Communications Decency Act.

These are necessary and worthwhile updates to NAFTA that will give businesses more certainty about cross-border digital work.

3. More trade, but also more uncertainty.

The ITC's analysis estimates that the USMCA deal will boost U.S. gross domestic product by about $68 billion while adding an estimated 176,000 jobs in the United States, with the manufacturing sector set to benefit the most. Exports to Canada and Mexico are expected to increase by between 5 and 7 percent.

Then again, NAFTA was a smashing success for the economies of all three countries, and that didn't prevent it from being vilified by elements of both the right and left—both Trump and Sen. Bernie Sanders (I–Vt.) basically agree that NAFTA has been a disaster, despite all evidence to the contrary.

Politics will always be a threat to free trade, but one of the more worrisome elements of the USMCA is that it will expire after 16 years. That creates built-in uncertainty. Jared Kushner, Trump's son-in-law and a key White House adviser, has argued that the trade deal's sunset clause "is not to encourage USMCA's early demise, but to ensure that the agreement will continue to serve America's interests over the long run" by forcing the three countries to return to the negotiating table periodically.

Maybe so, but it also means that we'll have to cross our fingers and hope there aren't protectionist governments in power in Mexico City, Ottawa, or Washington, D.C., in 2036.

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37 responses to “3 Things To Know About the 'New NAFTA' That Begins Today

  1. As a Koch / Reason libertarian, here’s my concern: How will this affect the net worths of the richest people on the planet, such as our benefactor Charles Koch?

    1. I have no information about it so I can only assume that nothing will change for him.

      #DoingNothingIsConsent
      #RichLivesMatter

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    2. Trump’s most sinister accomplishment has been to push the GOP away from their long tradition of supporting free trade. The only thing libertarians have left in common with the GOP is protection of the 2nd Amendment.

      1. Trump signed his famous $3 trillion Trump Welfare and Deficit Blowout Program.

        The GOP was on board with that (as were the Democratic pussies)

      2. Oh, my bad. Trump called it the CARES Act.

        Because he cares.

        about his reelection that is.

        $3 trillion? TRUMP DON’T CARE!

        1. It’s weird that Trump snuck into the offices of Nancy Pelosi and came up with the name CARES Act for the legislation that she authored and passed in the chamber of congress over which she is the highest authority.

          1. He’s tricky that way.

  2. “The ITC’s analysis estimates that the USMCA deal will boost U.S. gross domestic product by about $68 billion while adding an estimated 176,000 jobs in the United States, with the manufacturing sector set to benefit the most. Exports to Canada and Mexico are expected to increase by between 5 and 7 percent.”

    I preferred NAFTA and abhor protectionism, and while this will no doubt be of great benefit to unemployed Americans in the rust belt, much of that $68 billion is coming out of the American consumer’s pockets in the form of higher prices for domestically manufactured consumer products.

    That being said, trade treaties rightly belong within the sphere of democracy, anyone who opposes this deal should respect the democratic and constitutional process that created it. When something is constitutional and appropriately democratic, we have to accept its legitimacy–even if we oppose the policy.

    It just goes to show that the legitimate and effective means of fighting for things like free trade, more open immigration, etc. isn’t about inflicting our will on the American people with elitist politicians, academics, and bureaucrats. The American people voted for President Trump largely because they wanted this outcome, and the reason he was able to capitalize on their support was because we failed to persuade the American people to want less protectionism rather than more.

    Why weren’t we more persuasive?

    I suspect its because our argument became associated with elitism because it was co-opted by elitists. George Meany, head of the AFL-CIO for decades, saw communism as an anti-labor lock out of products made by American workers and breaking those communist barriers down in foreign countries as good for American workers. When Ronald Reagan and others pushed for trade, it was from the position that it was best for American consumers. Living standards rise when we can buy the same things for less–and use what we save to buy things we couldn’t afford before. There isn’t anything elitist about shopping at Walmart. Here’s the best, most concise argument against protectionism I think I’ve ever seen:

    https://www.youtube.com/watch?v=kByeOaKPujs

    Walmart: Save Money. Live Better.

    Until we strip anti-protectionism from the elitists, things will get worse and worse, and us pro-trade policies will keep losing. And don’t wait for the elitists to shed their elitism. What’s the point of being an elitist if you can’t lord over people? I recommend a steady barrage of ridicule and humiliation against the elitists when we see them. Elitist arguments for less protectionism are worse for the cause than arguments for more protectionism.

    1. Why weren’t we more persuasive?

      I suspect its because our argument became associated with elitism because it was co-opted by elitists.

      Or possibly because your policies are dogshit that have gutted the working class and resulted in the largest amount of people in poverty and on welfare in the entire history of the United States.

      1. But we did get the lowest possible prices for goods and services, and really, isn’t that what’s most important here?

        1. Can’t tell if you’re being sarcastic. That is perfectly correct.

          It should be noted that as the working class was gutted, people were making more and better livings than ever before–and their standard of living was rising in no small part due to trade with China, Canada, and Mexico.

          Yes, that’s what’s really important here, and forcing American consumers to suffer a lower standard of living in order to protect your buggy whip factory isn’t important at all. If you can’t compete with Chinese labor, then you really should find something productive to do–rather than force Americans everywhere to take a hit to their standard of living.

          1. So, who cares if you’re on welfare, you can get cheap shit on credit and default on the payments, right?

            1. They didn’t get poorer on average – the ‘working class’ got reduced in size because they moved *up* economically, not down.

          2. “If you can’t compete with Chinese labor, then you really should find something productive to do–rather than force Americans everywhere to take a hit to their standard of living.”
            I’m not sure if I can agree with your claim here, even if this is supposedly a libertarian take. How could an American citizen compete with Chinese labor? How could you compete with people who literally have no health and safety concerns toward their workers? How can you compete with people who utilize child labor? How can you compete with people who, by and large, are de facto slaves of a communist dictatorial regime? I’d say this claim is a bit disingenuous coming from you and I would argue whether it’s truly libertarian or not.

            I’d further stipulate that the reason libertarians are supporting laissez-faire capitalism is because of positive qualities e.g. innovation, R&D, economies of scale etc… does ‘gaming the system’ or ‘looking the other way’ when we see atrocities pass the sniff test?

            There was a time when people boycotted goods that were the product of slave labor. There was also a time when people boycotted a country that ran on apartheid policies. Now I appreciate that this was largely due to individual initiatives, yet I’d argue that someone who abides by core libertarian principles should not advocate for countries today that are doing exactly these atrocities or worse (China). I’d also concede that as a libertarian I cannot and should not force others to accept my (moral) stance on this topic for example, but as a libertarian myself I’m shocked to read something like that from a fellow libertarian. Fighting South-Africa was justified due to their apartheid policies, and eventually it worked. China is incalculably worse than S-A ever was, yet it is completely normal to trade and co-operate with them? In effect, we have outsourced child labor (among many things) intentionally because we wouldn’t be able to stomach it if it was happening on our soil.

      2. Citation most definitely required, because I’m pretty sure none of that is true.

    2. “The American people voted for President Trump largely because they wanted this outcome”

      Trump campaigned for election calling NAFTA “the worst trade deal ever,” and threatened to scrap it on many occasions. Those who voted for him presumably agreed. ‘This outcome’ amounts to a minor revision to NAFTA according to the article.

  3. I didn’t bother to read before posting this comment, but as this is by Boehm on Trade and Trump, I am going out on a limb and say he thinks it is bad. Very, very bad.

    Going to go read it now and see if I was right.

    1. He said it was a minor revision and a big deal. Enough said.

  4. The last NAFTA did virtually nothing for small and medium size businesses and only benefited large corporatist multinationals, too.
    Are big, bureaucratic trade agreements like this libertarian?

    1. “The last NAFTA did virtually nothing for small and medium size businesses and only benefited large corporatist multinationals, too.

      What about what it did for American consumers?

      1. I’m not sure. I know as a Canadian consumer it actually raised prices. As a primary producer the jobs, energy and raw materials went south. We bought the raw materials back as finished products with extra shipping costs, but the jobs never returned.
        High taxes and minimum wage laws kept them away.

        NAFTA was a daisy chain with Mexico as the dom, the US as Lucky Pierre and Canada as the catamite.

        1. To the extent that Mexican manufactured products cost less, they saved American consumers money. Because Chinese manufactured products were even less expensive than Mexico’s exports, Chinese made products predominated. At any rate, any product that can be imported to Canada or the U.S. for less than it costs to manufacture them in Canada or the U.S. that is of benefit to American consumers.

          https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/TradeAndInvestment/201447E

          This data is showing that there were more than $26.7 billion (presumably CAD) in imports to Canada from Mexico in 2013 alone. Canadian consumers were buying those products (or products made from those imports) because they thought those products were worth it and it was saving them money. If they could have saved money by buying $26.7 billion a year in locally made Canadian products, they would have bought the domestic option instead of the imports from Mexico.

          1. The idea that bureaucrats and politicians should prohibit Canadian consumers from buying Mexican imports because the purpose of government is to force Canadian consumers to sacrifice their standard of living for the benefit of Canada’s factory workers . . .

            There are descriptive words for that idea, and those words are “elitist” and “progressive.

          2. To the extent that Mexican manufactured products cost less, they saved American consumers money.

            They saved a very small subset of consumers money. The people who lost their jobs and then saw the real value of their wages stagnate while the US dollar decreased 300% in value in real terms living off of welfare, social security disability payments, and food stamps weren’t really in a position to benefit.

            1. “They saved a very small subset of consumers money.”

              You’re getting that entirely backwards.

              The people who benefit by shopping at Walmart (or anywhere else that sells Chinese made merchandise) far outnumber those that work in factories.

              It isn’t even close.

              Every American in the country may benefit from Chinese made consumer goods. Last I checked, less than 10% of Americans worked in manufacturing.

              1. America’s purpose in life is to consume and nothing else.

                1. The legitimate purpose of America’s government is to protect our rights. The legitimate purpose of American consumers is whatever those consumers say it is on an individual basis.

                  The fact is that the living standards of American consumers improves when they’re able to buy the same things for less money and are then able to afford more or better things with the savings.

                  Some of them use the money they save to give to charities or to buy products that, while more expensive, are easier on the environment. Regardless of whether you approve of the desires of individual American consumers, however, they’re better off when they can buy the same things for less anyway.

                  The legitimate purpose of government is not to force American consumers to sacrifice their standard of living for the benefit of factory workers. That is authoritarian and socialist. That is central planning. It violates our right to make choices for ourselves rather than protects it.

                  When I say I oppose socialism, I’m not kidding.

                  Neither other people nor their right to make choices for themselves exist for your benefit. If you don’t like your job, get another one. If you can’t get another job because you’re unqualified, go work on that. Don’t use the government to force everyone else to sacrifice their standard of living for your sorry ass. And if you think they’re selfish for caring about themselves and their families than they care about you, then what does that make you for parasiting off of their standard of living?

          3. I wish there’d be some coverage on “WHY Mexican products cost less”, same for Chinese. I’d like to see it cover regulations, labor, shipping, and more. Let’s see why we’re being undercut.

            1. It’s mostly because of labor costs. Labor is the variable.

              The material costs are more or less the same regardless of where they’re manufactured. The variable is labor.

              The Romans made their road perfectly straight and some of them are still in good shape 2,000 years later. We repave our roads every 15 years or so. Were they more capable in their design or materials in some way?

              The correct answer is no. The difference was that after its conquests, Rome was awash in slave labor. The cost of paying slaves is the cost of feeding them and providing them with whatever amount of shelter. If we didn’t have to pay for labor, we’d build our roads to last 2,000 years, too. But labor is always the driving cost.

              Right now, oil is at $40 a barrel. I remember when I was pricing building a warehouse distribution building back when oil was at $150 a barrel. That’s how expensive it had to be for petroleum-based asphalt to become just as expensive as concrete. Concrete last longer–especially with trucks running over it all the time. But it costs so much more than asphalt because the framing and finishing requires more labor. When labor is your most expensive input, being able to get it for much less is much better.

              For an absolute cost comparison, take a look at GDP per capita of all three countries. In the $U.S., we have a GDP per capita of around $60,000. In both China and Mexico, the GDP per capita is about $10,000. The actual labor costs are less than that, because people are generating more in value than they’re getting paid–or they wouldn’t be able to sell their products and services at a profit. That being said, as a rule of thumb, it might be safe to assume that the labor costs in the U.S. are about six times what they are in China and Mexico.

              Why would it be of benefit to American consumers to make us pay more for the same stuff?

    2. Are big, bureaucratic trade agreements like this libertarian?

      no.

  5. Bans localization of databases, requires higher auto part content, raises tariffs, etc etc etc.

    BUT TRUMP IS ENDING THEM JERB-KILLING REGULATIONS!

    (biggest lie ever told by Trump Trash)

    1. My impression of deregulation during the Trump Presidency is that they are not so much to save jobs as to provide a few more years to industries at the end of their lifecycle. Coal is not coming back, Trump provided a few short years of life support. So what you have between deregulation and tariffs is just cronycapitalism wrapped up to look better.

    2. It’s fun watching you rage impotently like the pathetic little cocksucking bitch that you are while Trump dismantles the totalitarian Marxist state erected by your chocolate messiah.

  6. Fiscal conservatives got nothing from the new NAFTA but it was like Christmas morning for liberals

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  8. Jewel-Osco in Chicago sells us oranges from Canada (no lie, some kind of biosphere in Saskatchewan and this isn’t a story line from a sitcom); fish from canada (accrued from the massive seal slaughter in Canadian waters, the largest mass slaughter of mammals on the planet, subsidized and even celebrated by the canadian government); and chicken from Canada, the meat so rubbery it ruins a meal–you cannot cook it into tenderness using anything. The grocery store chain simply states they sell it because it’s cheaper to the consumer. It’s hard to find alternatives. I’ve discovered smaller markets that sell more fresh foods, but I fear the lockdowns will put them all out of business. Once again, Left Wing trade policies favor the big corporations and environmental slaughter. If I drive cross country and never get cut off by those aggressive, angry drivers behind 18-wheelers with Alberta and Ontario tags, I’ll be happy to pay extra for goods. Trump 2020!

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