President Trump’s deal to replace the North American Free Trade Agreement with the new U.S.-Mexico-Canada Trade Agreement used extreme rhetoric and aggressive policy to achieve its results. The White House and the deal’s supporters argued the results vindicated this approach, pointing to changes in auto import rules, changes to Mexican factory wages, and opening Canada to more U.S. dairy products as proof.
Administration officials argued it took somebody willing to get tough to make any progress at all. “I would like to thank the president for his leadership and grit,” said U.S. Trade Representative Robert Lighthizer at a Rose Garden event Monday announcing the deal. “No other person could have done it.”
[Opinion: From NAFTA to USMCA, Trump just got a win for America]
Trade groups that benefited the most from the U.S.-Mexico-Canada deal agreed. Mike Dykes, president of the International Dairy Foods Association, applauded the administration for “tackling the tough issues,” noting to the Washington Examiner that Canada’s protectionist policies had been untouched since NAFTA was first agreed to in 1993. The new agreement deal would level the playing field for his members. He added, “It took that level of focus to change Canadian dairy policy because these things don’t just happen.”
The key changes in the deal secured Monday include:
- Altering the so-called “rules of origin” under NAFTA by setting at 75 percent the amount of North American-made parts needed for a car or truck to be duty-free under NAFTA, up from 62.5 percent.
- Requiring that at least 40 percent of all auto content be made by workers making at least $16 an hour or its equivalent.
- Obligating Canada to roll back some of its dairy price support programs and open up to more U.S. imports.
In exchange, the administration backed away from proposals to change the deal’s settlement dispute systems and agreed to sunset the deal after 16 years if all three partners don’t agree to extend it, far short of the five-year provision the administration had initially wanted.
Gary Hufbauer, a scholar at the Peterson Institute for International Economics, agreed that Trump has changed a lot about the way trade disputes are conducted, and had won some concessions from trade partners through his aggressive tactics that otherwise would have proved elusive. But Hufbauer noted that, so far, the two main deals Trump has reached — the U.S.-Mexico-Canada one and another with South Korea — did not involve radical changes to the prior deals’ texts. And Trump’s efforts to bring trade partners like China to the table through aggressive uses of tariffs have yet to pay off.
“In his approach he has certainly fired up lots of talks,” said Hufbauer. “So far, the two agreements, with South Korea and this, make modest changes in the predecessor agreements — some changes good, others bad.”
The most far-reaching changes in Monday’s deal to the old NAFTA agreement involved changes to import policies regarding autos, something that mainly involved the U.S. and Mexico. Approval was held up for nearly a month by trying to get Canada to assent as well. Last week, Trump’s frustration boiled over. “I must be honest with you, we are not getting along at all with their negotiators,” Trump said at a New York City press conference.
Juan Carlos Hidalgo, Latin American policy analyst for the free trade Cato Institute, argued that Monday’s deal was not likely to be stable in the long run. “This agreement is built more on threats than in trust. You don’t achieve lasting mutually-beneficial relations that way,” Hidalgo said.
But on Monday, Treasury Secretary Steven Mnuchin heralded the administration’s aggressive approach as one that would also work for negotiations with China and other countries.
“There is no question, whether it was Mexico, Canada, the EU, or China, this is very effective in negotiating better deals,” Mnuchin said of Trump’s tariffs threats in an interview on Fox News Monday evening.
A common theme of trade associations’ and congressional lawmakers’ reactions to the deal Monday was simple relief that the administration did not follow through with threats to break NAFTA into two separate bilateral deals, one with Mexico and one with Canada. “Manufacturers are extremely encouraged that our call for a trilateral agreement between the United States, Canada, and Mexico has been answered,” said Jay Timmons, president of the National Association of Manufacturers.
Senate Majority Whip John Cornyn, R-Texas, was also grateful that a trilateral deal was preserved, adding that they’d have to read the fine print to ensure that it did what the administration claimed. “Millions of American jobs are supported by NAFTA, and in Texas, it’s the cornerstone of our economy. This agreement is a positive step toward to maintaining a strong, unified North American economy, and I look forward to reviewing the details.”
