The United States-Mexico-Canada Agreement is the usual sort of dog’s breakfast that trade deals always become, splattered with the vomit of side deals for special interests at the expense of the populace. The saving grace of this particular deal between the U.S., Mexico, and Canada is that it’s mostly over relatively minor matters — does the Canadian market for cheese curds and whey really interest anyone? — and is going to have, for all the effort put into it and the trumpeting of the achievements, little effect in the overall scheme of things.
The only reasonable or fair trade deal is the one I’ve continually proposed for my native Britain as it leaves the European Union, here lightly adapted for U.S. usage:
- There will be no tariff or nontariff barriers on imports into the U.S.
- Imports will be regulated in exactly the same manner as domestic production.
- You can do what you like.
- That’s it.
Everything else, and anything else, is just someone trying to use politics to take a bite out of consumers’ backsides. That might be the aim of politics, to wax fat at the expense of another, but it isn’t the point of economics, nor is it fair or righteous.
Trade agreements are always about what we won’t be able to trade freely. The Canadian government wants its citizens to have to pay more for milk and cheese to raise the incomes of Canadian farmers, thus the arguments about how much (more importantly, how little) cheap American milk can be admitted. The changes to what Mexican car factories can do or must pay are about increasing the incomes of U.S. auto workers, and that makes labor unions happy. That the bite comes out of the wallet of every American who buys a car worries them not at all — they’ve got theirs, so why should members of United Automobile Workers care about their fellow countrymen? No doubt, Mexico has also been able to impose some barrier to the people of that country getting richer through the gains from trade.
Most of this is usually pretty obvious, but sometimes, we need to fill in some of the details. There’s a provision that the steel used to make cars must be “melted and poured” in one of the three countries in order to gain duty-free access. This means no buying cheap Chinese or Brazilian slabs and rolling them into auto bodies. Well, OK. I guess we all want to support the American steel industry, right? You know, those mighty plants with tens of thousands of workers who turn iron ore into steel?
However, the phrase is a slightly odd one to those with industry knowledge, and that’s what needs an explanation. The key to the decline of integrated plants is a detail of technology — namely, steel producers that turn those rocks into metal. These have indeed been going bust all over the place for decades, but not because of imports. Rather, technology advanced, and it became possible to make good steel by recycling scrap.
This uses an entirely different technology, arc furnaces instead of blast ones. And the proof of the contention is that America now has many fewer blast furnaces than it did and many more arc furnaces, without making much less steel. A company called Nucor drove this by using that new technology and is now the country’s largest steel producer.
I should note that I’m all in favor of closing the old furnaces and using the new. It’s the bit that comes next I’m not so keen on. For, we could say that only steel made from iron ore, “virgin steel” in the industry jargon, may get this tariff-free access. But while that would hugely favor those companies using blast furnaces, it wouldn’t satisfy Nucor, which didn’t make any of this from-unprocessed-components steel. Thus, we get “melted and poured,” which means Nucor steel, the recycled kind, meets the standard.
The ex-CEO and Chairman of Nucor, Dan DiMicco, was a trade adviser to the Trump campaign. Peter Navarro, the White House trade adviser, gained $1 million in funding from Nucor for a film he made. U.S. Trade Representative Robert Lighthizer’s private-sector career has contained more than one moment of insisting upon higher trade barriers to foreign steel — to the benefit of Nucor. I guess we could praise Navarro here for not turning on a former benefactor, something rare in politics.
The rest of us should be spitting with rage. American consumers will now pay more for cars to the benefit of a politically well-connected company. The price increase won’t be all that much more, but why should we have to put up with this at all?
This is always how trade deals go. They’re about who gets a bite out of your wallets and mine, nothing else. The trick is over what we’re not going to trade more freely. It would be better, by far, to do what Britain did in 1846 and simply have no deals at all, along my suggested lines above.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
