Friday, April 28, 2017

Why Trump Buckled on Withdrawing From NAFTA

The Wall Street Journal provides a play-by-play:
President Donald Trump was prepared to end the North American Free Trade Agreement deal, which had governed trade relations for the past 23 years, with a dramatic announcement Saturday at a Pennsylvania political rally marking his 100th day in office.

As rumors spread of the possible action, Mexican President Enrique Peña Nieto called the president urging him not to pull out of the accord. “Let me think about it,” Mr. Trump said. Within a half hour a call came in from Canadian Prime Minister Justin Trudeau with a similar request.

After the talks, Mr. Trump was
convinced “they’re serious about it and I will negotiate rather than terminate,” the president said in an interview with The Wall Street Journal on Thursday.

Meanwhile, Sonny Perdue—the agriculture secretary who took office two days earlier—and Commerce Secretary Wilbur Ross met with Mr. Trump and showed him a map indicating the states where jobs would be lost if the pact collapsed, according to a person familiar with the matter. Many were farm and border states that voted heavily for Mr. Trump...

But by 10:30 p.m. Wednesday, the White House issued a statement saying Mr. Trump had decided “not to terminate Nafta at this time.”

Meanwhile, a lobbyist for one big business group said he urged member companies to “have your CEOs call the highest-ranking administration officials they can reach.” Tom Donohue, the veteran president of the U.S. Chamber of Commerce, made at least three calls to the White House during the afternoon, a person familiar with the matter said.

Mexican and Canadian officials, who for months have been comparing notes on how to deal with the volatile new leader situated between them, reached out to each other throughout Wednesday to coordinate how to approach Washington, Mexican Foreign Minister Luis Videgaray told a Mexican television news program early Thursday. “Mexico’s and Canada’s positions are very similar, if not the same,” he said....

Late in the afternoon, “after a day that generated a lot of doubts,” the Mr. Videgaray said, Mr. Peña Nieto called Mr. Trump directly. The Mexican leader made the case that, rather than acting as a constructive prod for negotiations, an official threat by the U.S. to pull out of Nafta “would frankly have a very negative impact on Mexico and would practically cancel the possibility of a constructive negotiation.”

Mr. Trudeau separately reached out to Mr. Trump to make a similar argument. In a press conference on Thursday, Mr. Trudeau said that when Mr. Trump told him he was considering terminating Nafta, he warned the president that would put at immediate risk hundreds of firms and thousands of jobs that rely on an integrated continental economy for their livelihood.
So bottom line, what it came down to is Trump realizing that withdrawing from NAFTA would hurt some of his supporters.

But don't think for a minute this means Trump won't mess with Mexican and Canadian trade with the United States. He is a serious protectionist. He will just pick his spots of pulling away from NAFTA more carefully. And he won't be moving in the direction of free trade. It's going to be about tariffs and other border taxes.

Those close to the President, and from areas where he has strong support, will see barriers go up that favor them to the detriment of consumers. The barriers will also distort the production structure of the economy.

As Murray Rothbard put it:
 Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of less-efficient producers, at the expense of more competent firms and of imposing protective tariffs and quotas to save, bail out, and keep in place less efficient US textile or auto or microchip firms, the protectionists are not only injuring the American consumer. They are also harming efficient US firms and industries, which are prevented from employing resources now locked into incompetent firms, and who could otherwise be able to expand and sell their efficient products at home and abroad.


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