President Donald Trump notified Congress of his intent to sign a bilateral trade agreement with Mexico, as representatives from the United States, Canada, and Mexico continue to renegotiate the North American Free Trade Agreement (NAFTA), a trilateral trade bloc created in 1994.
Mexican representatives signed on to a “preliminary agreement in principle” on August 30, accepting proposed provisions that would require all automobiles manufactured and sold in the two countries to have at least 75 percent of their parts made in the United States or Mexico and 40 to 45 percent of all automobile content to be produced by individuals earning $16 an hour or more.
In July 1, Congress approved Trump’s request to reauthorize “fast-track” trade promotion authority (TPA), an executive power originally granted by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 but set to expire on that day, to facilitate the renegotiation of NAFTA and remove the U.S. Senate’s ability to amend or filibuster congressional approval of the deal.
U.S. Sens. Ron Johnson (R – WI), Sherrod Brown (D – OH), and other congressmen have questioned whether the fast-track powers include the ability to reform NAFTA as a bilateral agreement.
‘A Means to an End’
Since March 1 of this year, the U.S. government has imposed a 25 percent levy on the cost of steel and a 10 percent fee on aluminum imported from all foreign countries. Imports originating in Canada, the European Union, and Mexico were initially exempt from the tariffs, but Trump signed a May 31 order subjecting those countries’ businesses to the tariffs.
Seton Motley, president of Less Government, says he believes the tariffs and trade disruptions ultimately will benefit the United States.
“Trump is not doing this as an end; it’s a means to an end,” Motley said. “It’s absurd that these people are defending this bizarre status quo and calling it free trade, and then say that Trump isn’t engaging in free trade. They complain about the tariffs he imposes. … Okay, so, say he goes ‘whole hog’: $200 billion in tariffs with China. Our economy is $20 trillion dollars, which means $200 billion in tariffs is one percent of the entire economy. They need us way more than we need them.”
Predicts Higher Prices
Ryan Young, an adjunct fellow at the Competitive Enterprise Institute, says the proposed bilateral trade deal will increase the cost of consumer goods for U.S. residents, whether through tariffs or government-mandated increases in the costs of labor.
“Raising Mexico’s minimum wage in auto factories to $16 per hour is insulting to Mexico’s national sovereignty, as they should be able to set their own laws,” Young said. “But more to the point, if that doesn’t happen, raising the required percentage of U.S.-made parts in cars from the current 62.5 percent to 75 percent, under this agreement, raises the possibility of a tariff. Faced with disrupting a pretty big part of the global supply chain, companies may decide it’s just not worth it, and will pay tariffs instead, also making cars more expensive. Raising the minimum wage for Mexico’s auto workers also makes cars more expensive and is a de facto tariff.
“No matter what happens, we’re going to pay more for cars,” Young said.
‘NAFTA Deal Was Awful’
Motley says NAFTA is filled with scams and unfairly benefits other countries at the expense of the United States.
“The old NAFTA deal was awful,” Motley said. “It was incredibly one-sided in favor of Mexico and Canada. Additionally, there were holes you could drive tractor-trailers through. Any other country on the planet could pretend [its product was] in Mexico for five seconds, drive it north, and then get the benefits of being from Mexico in the NAFTA trade deal.”
Motley says NAFTA increased U.S. unemployment and destroyed many businesses, as predicted by Ross Perot, a populist candidate in the 1992 presidential election, running as an independent.
“As much fun as was made of Ross Perot 25 years ago—the ‘giant sucking sound’—he was 100 percent correct,” Motley said. “We lost millions of jobs. We lost thousands of companies. We set up the equivalent of saloon doors in the old movies, where you walk through Mexico from anywhere else on the planet and you get the benefits of the one-sided Mexican trade advantages.”
Alliances vs. Arguments
Young says the federal government should seek to punish unfriendly countries opposed to U.S. interests, such as China, instead of picking fights with allies.
“The big fish is China,” Young said. “In order to effectively deal with China’s abuses, like property expropriation, intellectual property theft, and many other areas in which Beijing is simply not a good actor, the U.S. needs allies. We can’t go this one alone. We’ll need Mexico, Canada, and the European Union. To stand against our allies does not help that larger cause. It hurts us.”