Changes On Tap For NAFTA?

Jun 7, 2017

Credit Santa Teresa, New Mexico

Commentary: On May 18, U.S. Trade Representative Robert Lighthizer sent notice to Congress that it was the Trump Administration's intention to initiate negotiations with Canada and Mexico, "regarding modernization of the North American Free Trade Agreement." According to the notice, "In particular, we note that NAFTA was negotiated 25 years ago, and while our economy and businesses have changed considerably over that period, NAFTA has not. Many chapters are outdated and do not reflect modern standards. For example, digital trade was in its infancy when NAFTA was enacted. In addition, and consistent with the negotiating objectives in the Trade Priorities and Accountability Act, our aim is that NAFTA be modernized to include new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment, and small and medium enterprises."

According to the notice, there will be a 90-day period after which the Trump Administration will begin negotiations with our two North American neighbors. The notice is short on details as to what specifically needs to be renegotiated. Trump's anti-NAFTA rhetoric during the presidential campaign was extremely severe, however, the notice takes special care not to use any accusations or insulting language, preferring to refer to NAFTA as needing to be “modernized.”

On March 20, 2017, speaking at a rally of supporters in Louisville, Kentucky, President Donald Trump stated, that NAFTA was the, “worst trade deal made by any country, I think, in the world.” If Trump believes this to be true, why does he want to renegotiate NAFTA?  He should cancel it. Lighthizer’s notice certainly does not sound like it’s a move to cancel the worst trade deal in history - rather, it seems to be extremely cautious in its tenor.

In reality, whatever Trump believes about NAFTA, there are too many people in his support base who benefit from this agreement, and would be negatively impacted if it were to go away. Trade between the U.S., Canada, and Mexico has increased from $290 billion in 1993 to more than $1.1 trillion in 2016. By analyzing statistics generated by the U.S. Bureau of Economic Analysis, the Canadian Embassy in Washington, D.C. estimates that approximately nine million U.S. jobs depend on trade with Canada. The U.S. Chamber of Commerce estimates that approximately five million U.S. jobs depend on trade with Mexico.

Entire U.S. economic sectors are dependent on North American trade. According to the U.S. Department of Agriculture, in 2016 U.S. agricultural companies exported $17.9 billion of exports to Mexico, with corn ($2.6 billion), soybeans ($1.5 billion), and pork ($1.3 billion) as the leading products purchased by our southern neighbor. In Midwestern states that supported Trump for president, such as Iowa, the agricultural sector depends on these exports to keep their investments healthy and their workers employed.

On April 29, when Trump was quoted as saying, “I was all set to terminate (NAFTA). I looked forward to terminating. I was going to do it,” it was revealed that his own Secretary of Agriculture, Sonny Perdue, had persuaded him with charts and statistics that this was not a good idea, because it would cost the U.S. jobs and directly affect Trump’s support base. Ironically, Republican members of Congress, who have stuck with the Trump agenda, are advising him to proceed cautiously with the agreement. They understand the high stakes of backing all three North American partners into a corner from which they cannot escape. As the negotiations occur, it is going to be an interesting dynamic to see how Trump’s supporters in Congress perform the delicate balancing act of representing the interests of their constituents who depend on NAFTA, while attempting to be loyal to the President.

I believe that certain parts of NAFTA could use a fine tuning, such as modernizing the energy sector provisions and making sure that North American content rules are being applied and can be adequately monitored. The trucking issue, which on paper allows registered long-haul trucks to cross into the interiors of either nation to deliver loads, also needs to be reviewed. Trade agreements should not be static and should be reviewed periodically.

If the U.S.-China trade agreement is any indication of the direction that the Trump administration is going as pertains to trade, NAFTA might receive a simple tightening up without any major structural changes. The tough talk on trade could end up being a lamb disguised as a lion. Perhaps, after a tweak here and a tweak there, the President can raise his hands and declare victory so that this issue can be put to rest, thus allowing the thousands of companies and millions of people dependent on trade under NAFTA to go on with their lives without the uncertainty and confusion that he himself has created.   

Jerry Pacheco is President of the Border Industrial Association.  His columns appear in The Albuquerque Journal.