Image Credits: EFE-EPA/ Shawn Thew
Proclaiming it as “one of the largest trade deals ever made,” President Trump announced a new preliminary agreement with Mexico last week, the U.S.-Mexico trade deal. He hopes to end the North American Free Trade Agreement (NAFTA) and finalize this pact with Mexico instead. Trump has long discussed his disdain for NAFTA. Instead, he wants to put the American worker first. Additionally, to move away from the negative connotations associated with NAFTA, President Trump also renamed the contract. On both sides of the aisle, there are supporters and critics of the deal, as the consequences remain speculative. Larry Kudlow, the National Economic Council Director, stating that this deal “protects the American worker while promoting economic growth.”
The new agreement is supposed to further protect American workers, continue the North American supply chain, modify some agricultural rules and provide intellectual property reform. Some say that this bilateral deal could hurt the U.S. as revised automobile regulations and labor protections are incorporated, possibly raising cost for companies. Several conservative thinkers note that these renegotiations could also be a step back from NAFTA. With new rules, the government could have an increased role in the marketplace. In turn, it could restrict trade and weaken investment protections.
There is also discussion on the effect this will have on Mexican low-wage workers. Activists believe that the new terms will not boost Mexico’s auto industry wages until the country’s labor laws are modified from their current state. Under current regulations, workers in Mexico often have little protection under pro-company contracts. These regulations are not projected to change anytime soon, as the government is corrupt and ineffective. The U.S. Trade Representative’s Office, however, stated, “Mexico commits to specific legislative actions to provide for the effective recognition of the right to collective bargaining“.
Under new terms, Mexico made concessions on labor and automobile rights. They are allowing a 25 percent tariff on Mexican-made passenger vehicles and auto part imports to the U.S. With the current tariffs under consideration, Mexican duty-free exports of cars and sport-utility vehicles to the U.S. would also be capped at 2.4 million vehicles annually. It seems that some of these new guidelines could have a positive effect on American jobs and the economy.
Background on NAFTA
The North American Free Trade Agreement established a free trade zone between Canada, Mexico, and the United States. Signed in 1992, tariffs were lifted over time, as well as many cross-border restrictions. According to the Office of the United States Trade Representative, NAFTA covered intellectual property rights, customs procedures, rules of origin, sanitary measures and other procedures between the three nations. An often-recurring topic, NAFTA has received much praise and criticism from Americans, economists, and politicians alike.
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President Trump’s new U.S.-Mexico trade deal is supposed to differ from NAFTA in several ways. Under the new terms, 75 percent of car contents must be produced in the U.S. or Mexico, rather than the 62.5 percent standard laid out in NAFTA. 45 percent of autoworkers must also be making at least $16 per hour, rather than the 40 percent minimum under NAFTA. The sunset clause has also been revised, with reviews of the pact occurring every six years, and termination occurring after a decade if a dispute cannot be resolved. Intellectual property protections for the United States have been strengthened, as NAFTA did not address much of the online activity happening in today’s world. Mexicans’ right to collective bargaining is also included, which has never been previously incorporated.
Canada has felt pressure to come to the negotiating table after Mexico and the U.S. quickly proposed terms of the new pact. Canadian Foreign Minister Chrystia Freeland visited Washington D.C. last week to advocate for Canadian interests. She met with both Mexican officials and Robert Lighthizer, the U.S. trade representative, in an effort to meet the deadline to amend NAFTA. The August 31st deadline set by the Trump administration to overhaul NAFTA was missed, as Canada and the U.S. still had unresolved disagreements. Talks are supposed to resume this Wednesday to hash out more details of the accord, and the deadline may be pushed to September 30th. Officials are optimistic that the two countries can come to terms and finalize the pact by then. According to congressional rules for trade agreements, text from any agreement must be released to the public 60 days before the official signing. Finalizing terms by the end of September would allow for the signing of this treaty to occur by November.
This deal carries tremendous weight, as trade amongst the three countries totals roughly $1.2 trillion annually. President Nieto of Mexico and President Trump said they would both move forward with their pact by November 30th, with or without Canada, in time for Nieto’s departure from office. This rhetoric of a bilateral agreement worries some lawmakers and business groups. They believe that leaving Canada out would be a huge mistake. Several members of Congress have even stated that they would only support a trilateral accord similar to NAFTA.
While this may be a political win for the Trump administration before midterm elections, the effect on trade negotiations with other nations is variable and unknown. China is a country many politicos have been focused on as the so-called “trade war” has escalated between the U.S. and China. The strategy will probably be different with China, given that the U.S. has so far taken a hardball approach while trying to invoke changes to China’s intellectual property protection, technology, and security procedures. Sanctions and tariffs have already been used to punish the Chinese for past violations against U.S. agreements. Back in April, The U.S. imposed sanctions and fines on China in retribution for the ZTE Corporation scandal, in which sensitive American technology was shipped out to North Korea and Iran. President Trump has stated before that he believes China takes advantage of the U.S. in many trade interactions. He hopes to convince China to adopt more beneficial trade terms with hard line diplomacy.
The final hurdle of this entire process will be passing the trade deal through Congress. An approval is required for any trade agreements. It is hard to say whether the U.S.-Mexico trade deal will pass through Congress as it has been drafted thus far. With the incorporation of Canada, Congress members’ opinions could change. Regardless, the concessions brought to the table through the accord could have a drastic affect on both Mexican and American workers, production and economic investments. It is apparent that the Trump administration hopes to set a precedent with this trade deal and promote America first in global negotiations and diplomacy.