Nafta is now USMCA

On the deadline, Pres. Trump signed a new deal to replace NAFTA, the North American Free Trade Agreement, with a replacement, USMCA, the US, Mexico and Canada Agreement.  Since the PM of Canada and the Pres of Mexico also signed it, it must also be good for them.  According to Pres. Trump, this new agreement protects US trade more than NAFTA did.  In fact, since the US economy is booming, as Pres. Trump has argued, it is a privilege for each of these countries, and many others, including China and the EU, to have beneficial trade agreements with the US.

Recently at a dinner someone expressed the view that Trump’s initiation of “trade wars” could result in disaster for the American economy.  My immediate reaction was “bullshit.” Why?

Because the US economy is booming and as this new USMCA deal shows, every deal made in the past can be improved by doing something other Presidents did not do, namely put American interests first. NAFTA was conceived by Pres. Clinton not so much to help the American economy and workers, but to help Mexico and to a lesser extent Canada to develop economically and to protect their financial interests.  It was a magnanimous approach by past liberal Presidents, in the full knowledge that US jobs and companies would move to those countries.

Also, agreements with the EU and China were arrived at when the other side maintained tariffs against American goods, such as cars in Europe, while the US was not allowed to have such tariffs.  It is Trump’s unique combination of bluster and hard-headedness when it comes to economic policy that he insists on a level playing field for the US in all such trade deals.  And he is right.

So the question is, after the fact, how does one try to get a level playing field, how can one force the EU and China, the US’s two main trading partners, to change past policies that benefit them and not the US.  The only way is to challenge past agreements and put economic pressure on them.  In other words, what some like to call a “trade war”, to establish tariffs against their goods, just as they have maintained against the US.  Of course, they don’t like this, so they respond in kind.

But, Trump is correct, the US has a far stronger economy that any other country, and they all need to trade with the US more than the US needs them.  So the likelihood is that in any such “war” they will cave first.  It is not guaranteed, but since we are talking basically about economic interests, it makes sense since they have more to lose than the US.  So the Trump rubric is that the other partner will cave first, as happened with Canada and Mexico, and then we will have real trade agreements in which both sides are treated equally.  That will be good for the US economy and for all Americans.

 

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