With NAFTA-busting deal, Trump negotiates his re-election

Anyone who has lived in this country for over 20 years is likely to notice the loss of manufacturing jobs as they have moved to Mexico and Asia.  This was one of several reasons why Donald Trump was elected president.  He has now concluded two trade agreements, one with South Korea, little noticed by the media, and the USMCA deal, which was reached Oct. 1, 2018.  The media have spent so much time on the Brett Kavanaugh allegations that they hardly mention this agreement.  Afterall, this is a big win for Trump (which they said could not be done) and another promise kept.

What are the changes, and how will they affect the three nations?  In a joint statement, U.S. trade representative Robert Lighthizer and Canadian foreign affairs minister Chrystia Freeland said the agreement "will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home."  Outgoing Mexican president Enrique Peña Nieto has a success and has relieved President-Elect Andrés Manuel López Obrador the headache of negotiations.  This is a win for all three countries.  The loser is likely to be China, with more interaction within North America.

Any improvements to the 24-year-old NAFTA will help the economy of our countries.  With the U.S. economy already roaring, this will help supercharge it and ensure that the growth continues for a long time.

The agreement has 34 provisions and 12 side letters and other provisions.  The lawyers and negotiators must have had a field day with such a complex agreement.  Credit must be given to Trump's son-in-law Jared Kushner who helped with many details.

The agreement covers about $1.2 trillion in trade value.  It is expected to be signed in November before Mexican President Nieto leaves office.  It was resisted by Canadian prime minister Justin Trudeau until two hours before the deadline.  No doubt, many Canadians will see this agreement as pressure from the larger southern neighbor.  The legislatures of the three nations must ratify the agreement, which is no sure thing.  Provisions will take effect in 2020 and will be reviewed every six years.  Unless all three nations agree to extend it, the agreement ends in 2036.

The automobile industry will be heavily affected.  Thirty percent of all production must be done by workers making at least $16 per hour, compared to the average Mexican worker in the parts industry making $3.50 and $7.50 in assembly plants.  With average USA workers earning $20 per hour, the disadvantage is obvious.  By 2013, the percentage rises to 40%.  Now 75% (up from 62.5%) of the parts must originate in Mexico, Canada, or the USA to avoid all tariffs.  Further, 70% of the steel and aluminum must come from North America.  Up to 2.6 million autos can be exported to the USA without any tariffs, which limits imports to the USA, but trucks are exempt.  If companies shift auto manufacturing to other countries, there is a 2.5% tariff.

Dairy farmers in the USA will gain, as $560 million's worth of products will be exported, which is only 3.5% of the $16-billion Canadian industry.  This will be resisted bitterly by Canadians.  The price for the U.S. was an agreement to allow an arbitration panel from all three nations. 

Steel (25%) and aluminum (10%) tariffs imposed by Trump for national security reasons remain in place until further negotiations.  U.S. wine-makers will be able to sell products in British Columbia, heretofore restricted.

The agreement stiffens penalties for theft of intellectual property and digital material.  It means that the patents the USA grants for pharmaceuticals will be respected.  U.S. banks will have greater access to Mexican markets.  Meanwhile, Mexican workers will have easier ability to form unions.  Provisions will restrict currency manipulations, which will affect countries outside North America.

The bottom line is that Americans will pay more for cars.  But the manufacturing base of North America will be protected.  This will maintain the incomes and wealth of North America.

Fair trade does not really mean free trade when each country considers its position.  Trump may have wanted to eliminate all tariffs, but that was never in the cards.  Instead, the USA has a better deal, which means it is fairer.  More importantly, its boosts Trump's political position for the midterms and is likely to give him a major edge for re-election.

Image: Gage Skidmore via Flickr.