Economy

Is the End Near for NAFTA?

That depends on whether Trump wants to scrap the deal or renegotiate. He's held both positions.

Michael Swartz · Apr. 28, 2017

Since being signed into law by Bill Clinton in 1993, the North American Free Trade Agreement has been a political whipping boy for various interests. In particular, one group of Americans has never warmed up to the opportunities NAFTA could have provided.

That sting was felt by those who saw the maquiladoras lined up along the border between the United States and Mexico. These duty- and tariff-free assembly plants were a constant reminder to those whose livelihoods were being erased by a southward stampede of American manufacturing. Thanks to NAFTA, companies could now crank out products once made in the Rust Belt with a significant cost difference thanks to the cheaper labor in Mexico. Meanwhile, those fortunate enough to get a job in these factories could begin to make their way up Mexico’s version of the economic ladder.

On the other hand, some estimates say NAFTA supports 14 million American jobs, and has generated $1 trillion in trade between the three nations.

A number of politicians over the years have attempted to curry favor with protectionists by running against NAFTA, but none were more forceful or outspoken while being successful than Donald Trump. There’s little doubt that thousands of onetime laborers and factory workers took to heart Trump’s promise to repeal or at least renegotiate the trade pact with more favorable terms for America, and those votes may have made the difference in states like Pennsylvania, Michigan and Wisconsin.

Promising to address the issue in his first 100 days and actually governing are two different things, though. Factor in Trump’s tendency to shift positions on the fly, and you get what one Canadian trade group’s director of government affairs called Trump’s “typical way of doing things — saying completely unreasonable things as a negotiating posture.” Thus, it was only a matter of a few hours — and conversations with both Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto — before the president’s initial threat to drop NAFTA entirely softened to a vow to renegotiate the pact while reserving the right to withdraw and negotiate separate bilateral deals with each nation.

Having separate deals rather than one common market seems to be Trump’s true preference anyway. Trump showed this by withdrawing from the Trans Pacific Partnership. Then again, just Thursday he threatened to terminate a bilateral trade agreement with South Korea, calling it too “a horrible deal” that’s left America “destroyed.” So who knows.

As a deal struck in the days before more recent technical advances like iPhones, Google, and virtual retail, where even a tiny shop has the capability to sell products to far-flung corners of the world, there are many observers who believe a renegotiation of NAFTA could rejuvenate the free trade movement and enhance economic freedom. They also see it as an opportunity to make the deal more of a trade agreement, eliminating many of the sidebar issues negotiators insisted on including, such as environmental mandates or labor regulations.

On the other hand, there are those who feel that the U.S. should adopt a “Buy American, Hire American” stance on trade and immigration. Trump issued an executive order regarding that very thing last week. Others call that “dangerous nonsense” and argue it isn’t a viable solution at the moment because (A) the last thing the world economy needs is a trade war that America starts, and (B) adopting a protectionist approach to trade and — to a lesser extent — immigration will only lead us in that direction. To lead in a market, one must first be able to compete in it. Companies that corner a domestic market often become complacent and lag far behind globally.

Yes, NAFTA has problems. Witness the recent Trump move to place tariffs on Canadian softwood because the administration argues our northern neighbor is subsidizing its industry at America’s expense. For its part, Canada also puts its own tariff on American dairy products, so we aren’t talking about a completely free trade zone here. Broad areas of commerce between the three nations, particularly in energy and technology, are exempted from NAFTA.

Whichever way the Trump administration eventually decides to go, the prevailing wisdom is that NAFTA isn’t long for its present form. If he can master the art of this deal, Donald Trump may set the precedent for American prosperity in a global economy for the next couple generations. Because whether you agree with his trade positions or not, it’s clear his message is “America first.”

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