Wednesday, August 29, 2018

New Trump-Mexico Trade Deal ‘Worse in Many Ways’ than NAFTA: Trump's Plan to Blow Up Global Supply Chains

It's worse than I thought.

From a Wall Street Journal editorial:
The Presidents of America and Mexico announced a new trade agreement Monday that Donald Trump called “much better” than the North American Free Trade Agreement. We’ll reserve judgment until we see the fine print, but on first inspection this is half a
Nafta that contains some improvements but is notably worse in many ways...

The good news in the new deal includes an extension on data protection for biologic drugs to 10 years from five. Genetically modified crops couldn’t be discriminated against, and there are protections for agriculture producers such as cheese farmers against regulatory abuse. These and other details are helpful modernizations for a pact that is nearly 25 years old.

The U.S. also seems to have stepped back from its demand for a five-year “sunset” that was essentially a backdoor way to dampen cross-border investment. The two parties agreed instead to a 16-year pact with a review period after six years. They could then extend the pact for another 16 years if everyone is happy, or they could renegotiate areas that have become problems. This introduces more political uncertainty for investors than under the current pact but may be tolerable.

The new deal has many problems, however, not least that it excludes Canada. U.S. Trade Rep Robert Lighthizer used the desire of Mexican President Enrique Peña Nieto to sign a deal before he leaves office to raise the negotiating pressure on Canada. Mr. Trump implied Monday that either Ottawa signs on or he’ll slap a 25% tariff on cars made in Canada....

Another problem, a large one, is that the bilateral deal strips current protections from most U.S. investors in Mexico. Oil and gas, telecom and power-generation investors will retain what they now have. Others will be protected only against physical expropriation.

But countries other than Venezuela are smart enough not to send in the police to occupy a plant or hotel. They’ll use regulation to favor domestic competitors. Believe it or not, this was a Trump-Lighthizer demand: They figure that if U.S. companies are more vulnerable to foreign abuse, CEOs will keep their money at home. This is economic nonsense since American workers prosper when their companies prosper—abroad and at home. Why make it harder for U.S. firms to court customers abroad?...

he deal also imposes new red tape and costs on the auto industry to punish imports. The deal says that to get tariff-free treatment cars sold in North America must have 75% of their content made here, up from 62.5%, and at least 40% of the content must be made with workers who earn $16 an hour.

This is politically managed trade, and its economic logic is the opposite of Mr. Trump’s domestic deregulation agenda. Ford and GM seem to have made their peace with this intrusion into their management, but car makers with assembly plants in Tennessee, Alabama and other GOP-leaning U.S. states could suffer if they import more than 25% of their parts.

This auto gambit is part of the Trump-Lighthizer strategy to blow up global supply chains, and it is a political strategy to get a revised deal through Congress. That also explains the deal’s new labor provisions that go far to imposing U.S.-style labor laws on Mexico. The details still aren’t clear, but Mr. Lighthizer said Monday those rules will be “enforceable” on Mexico as part of the new deal...

Mr. Lighthizer has quietly courted Ohio Democrat Sherrod Brown and protectionist Lori Wallach of Public Citizen during the negotiations. He’s betting that helping the AFL-CIO unionize more of Mexican industry will coax Democrats to support a new Nafta...

We’re glad to see Mr. Trump step back from the suicide of Nafta withdrawal, but on the public evidence so far his new deal is worse.

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