After Monday’s televised conversation in which President Donald Trump and President Enrique Peña Nieto of Mexico talked past each other to announce a new U.S.-Mexico trade agreement, there have been numerous analyses of the challenges the NAFTA-replacement deal faces. What if they are all missing the point?
The analyses build off a very conventional set of premises: NAFTA is very important to the functioning of the North American economy; The President was serious in his critique of the existing deal; The President actually wants to conclude and implement a new, better deal that will help American workers and farmers.
Here is an alternative, unconventional set of premises: President Trump does not care about the details of how NAFTA works, either the old version or the proposed new one; He does not care about whether the new deal passes Congress; He only cares about having a potent issue for the 2018 midterm elections and his 2020 reelection campaign.
Under the conventional interpretation, we imagine that the Trump team has been rushing to meet deadlines imposed by Trade Promotion Authority (TPA) legislation and the coming Mexican presidential transition. They have been trying to meet the concerns of key interest groups in the United States and are eager for the new deal to garner sufficient support to pass Congress and remold U.S. trade flows.
Under the alternative interpretation – call it NAFTA as a political prop – the administration wants to be able to claimthat it turned a terrible NAFTA deal into something great. All it needs in order to make this claim is any completed deal in time for fall campaign season, since very few voters are going to engage with economic analyses of what the new text actually means. So it does not matter much what is in it. In this version, it is actually a plusif the deal fails in the next Congress. Then President Trump can hold Congress responsible for killing his awesome rewrite, he can campaign against the swamp creatures, and the inadequacies of the new agreement will never be put to the test. This works even better if the opposition comes from Democrats in the House.
How can one decide between these two conflicting hypotheses? Examine the evidence and see which fits better. There are a number of actions and stances the Trump administration has taken that are very hard to explain under the conventional trade hypothesis, but that fit easily with ‘NAFTA as a prop.’
- Why has the administration been ignoring industry groups and congressional leaders?
Most U.S. Trade Representatives spend their waking hours worrying whether their deals will enjoy enough support to pass Congress. This involves regular consultation with leading members as well as with key industry groups.
Instead, USTR Robert Lighthizer has cast aside strong suggestions from leading Republicans like Senate Finance Chairman Orrin Hatch (R-UT) and House Ways and Means Chairman Kevin Brady (R-TX) about what they would like to see. In the wake of Monday’s deal, Rep. Bill Pascrell (D-NJ), ranking member of the House Ways & Means trade subcommittee, complained that the official House trade advisory group had not been consulted since May 2017, before the NAFTA renegotiations started. A leading Democrat on trade, Rep. Sandy Levin (D-MI) said the new labor provisions in the Mexico deal have little chance of winning Democratic backing.
Such lack of Hill support would be devastating – ifthe goal is to pass the deal through Congress. If the goal is a political prop, then irritating the establishment works perfectly.
- Why do you bungle the TPA rules?
If the administration were following the conventional approach, it has been extraordinarily cavalier about the rules governing trade negotiation. Not only has it skimped on consultation, as noted above, but it missed the May deadline for getting a new NAFTA through the current, Republican-controlled Congress. It now has to deal with new, unknown leadership in the new congress that takes office in January. Further, there is the problem of whether the USTR can even proceed with the U.S.-Mexico deal, since TPA requires advance notification of talks and those were only filed last year for a trilateraldeal, not a bilateral
These are problems only if you care about passage. If you are looking for a scapegoat, the possibility that a new, Democratic House Rules committee decides that obscure TPA regulations were improperly observed sounds ideal.
- Why so solicitous about Mexican politics?
The rush to wrap up NAFTA talks this week is supposedly premised on Mexico’s December 1 presidential transition. It would be politically difficult, the reasoning goes, for the new Mexican president, Andres Manuel Lopez Obrador(AMLO), to sign the deal. Hence, talks must conclude in time for a November signing ceremony.
There are two oddities with this reasoning. First, since when does President Trump worry about Mexican political sensitivities? Second, if President Trump is suddenly feeling diplomatic, why does this courtesy not extend to Canada?
Under the conventional explanation, it would make more sense to extend the talks to allow for a fruitful negotiation with Canada, the largertrading partner of the United States.
Under the political prop explanation, the present timing works just fine. The brinksmanship allows President Trump to look tough and gives him an agreement to wave in the air while campaigning over the next two months.
- If the original NAFTA was so horrible, why settle for something that is roughly similar?
While the public announcements about the new deal with Mexico certainly suggest some changes, these appear somewhat minimal: Different intellectual property protection; Some changes to investor protections; New rules of origin, particularly in autos – though sufficiently minor that Mexico says its current exports can mostly meet the new rules.
If President Trump’s critique were genuine and his goal were a passed agreement, this would pose a real problem. Upon implementation, he would risk lots of disappointed supporters who had imagined millions of new manufacturing jobs once the scourge of old NAFTA was expunged.
If this is a political prop, it really does not matter what is in the agreement. It probably will not pass anyway, so supporters will just believe whatever outlandish benefit claims the President’s team might make about what it would have done.
What of the President’s threat this week to terminate NAFTA and to slap 25 percent tariffs on imports of Canadian autos? Does that not show his determination to push for a serious new deal? Actually, no. These are threats the President has made before. He first tried to kill NAFTA in April 2017. He is proceeding with his “national security” tariffs anyway. If anything, the appearance of a trade “win” with the new Mexico deal will help buy him time to continue down the protectionist path he clearly prefers. He will present it as evidence that his approach works.
Trade aficionados will be watching closely this week to see if Canada is included or cast aside in the new NAFTA. We will parse the new clauses of the agreement as they emerge from negotiations. But the evidence suggests we are probably missing the point.