While taxpayers and free trade proponents might be somewhat disappointed by the revised North American Free Trade Agreement, the deal is clearly a big win for big labor unions. And unions have one man in particular to thank: Peter Navarro, the top trade adviser in the White House.
Navarro’s political playbook has always been pretty straightforward: Get in tight with special interest groups (most notably, powerful labor unions) and follow their marching orders. That’s what happened with this new NAFTA agreement, and it should come as no surprise. Just look at what he wrote his 1998 memoir in which he charted out his union-centric plan to win a seat in Congress:
More recently, Navarro reportedly sought to rewrite NAFTA in a manner that would gain the support of unions and congressional Democrats. As a senior administration official told reporters, “These are the most forward-leaning labor provisions ever agreed to, and they can be completely enforceable. So I’m optimistic that we will get a lot of bipartisan support.”
This is disappointing. Updating the trade pact should have presented an opportunity to foster a more free market for international commerce that encouraged job growth and economic expansion. Instead, the deal panders to Big Labor by imposing stricter rules and regulations on businesses, particularly on automobile manufacturers. This is a classic example of managed trade, in which the government picks winners (labor unions) and losers (consumers and entrepreneurs).
For instance, stricter “rules of origin” requirements will make it more difficult and costly to build cars in North America. These provisions force private businesses to use higher percentages of domestically sourced inputs and labor in order to qualify for reduced or zeroed-out tariff rates. Claude Barfield of the free-market American Enterprise Institute called this section of the deal “an abomination” that will “invite endless litigation and corruption.” It’s almost as if this provision was taken directly from the AFL-CIO, which, in its recommendations to the Trump administration, called for “increasing regional value requirements for autos, auto parts and other manufactured products.” Similarly, Navarro recently described the new NAFTA deal to Fox Business by saying, “There are a lot of bells and whistles in this agreement, but what drives the engine here is the rules of origin and really tough labor provisions.”
Making matters worse, and contrary to the advice of free market advocates, the trade deal would force a $16 minimum wage on some workers in Mexico. This is another labor union priority that Navarro pushed into the revised pact. The AFL-CIO explicitly called for a new NAFTA with “stronger rules to raise wages and environmental protections in Mexico.”
Also of note, the pact weakens the current system of international dispute resolution — another top priority of labor unions that claim it “undermines the rule of law and facilitates offshoring.” This marks yet another victory for Big Labor.
To be fair, a new NAFTA deal could be much worse. A proposed five-year sunset clause was thankfully extended to 16 years. The agreement wisely increases Mexico’s de minimis customs thresholds, meaning small packages and goods will be able to enter Mexico free of tariffs and red tape. It establishes zero tariff rates for digital goods, which weren’t part of the original deal. And perhaps most importantly, it firmly establishes the rules of trade with one of our most critical trading partners and allies in Mexico. Hopefully, Canada will become party to an improved deal in the near future.
But at the end of the day, it’s an agreement that moves in a more protectionist direction than the current NAFTA arrangement thanks to the abundance of Navarro’s pro-union fingerprints. President Trump should intervene as negotiations continue and cut a better deal that seeks to gain the support of Republicans and free trade advocates instead of pandering to the Big Labor leanings of his misguided trade adviser.
This new NAFTA deal made it clear that Navarro has little intention of implementing the president’s vision of a trading system with zero tariffs, zero nontariff barriers, and zero subsidies. If Trump is going to achieve that, he’ll need a better trade adviser.
Brandon Arnold (@BrandonNTU) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is the executive vice president at the National Taxpayers Union.
