President Trump’s new trade deal with Canada and Mexico isn’t nothing. It offers new protections for U.S. intellectual property, along with data and digital assets. It slightly improves American access to the Canadian dairy market. And new provisions on autos could protect some U.S. manufacturing jobs.
But as trade experts scour the details of the new U.S.-Mexico-Canada Agreement, they wonder why so much effort produced so little change. Trump, of course, threatened to withdraw from the original North American Free Trade Agreement, which he called the “single worst deal ever approved.” That would have thrown portions of the U.S. economy into havoc and possibly caused a recession.
Trump also pulled the United States from the Trans Pacific Partnership, which included some of the same provisions Trump included in his new Canada-Mexico deal. And as a negotiating stick, Trump imposed tariffs on steel and aluminum imports from Canada and Mexico (and from many other countries), which remain in place, and benefiting some companies, while punishing others.
‘Better than nothing’
The end result of all this maneuvering is a new trade deal that’s slightly different from the one it will supersede, with the jury still out on whether it’s a net improvement. “The USMCA is certainly better than nothing,” writes Douglas Holtz-Eakin, president of the center-right American Action Forum, and former director of the Congressional Budget Office. “It may be better than NAFTA itself, but probably not. And it is certainly not as beneficial as, say, passing the original Trans Pacific Partnership.”
Here’s the sequencing for Trump’s sleight of hand: 1. Label the status quo crafted by his predecessors a disaster. 2. Threaten to tear down the status quo, no matter how disruptive. 3. Produce an outcome slightly different than the status quo. 4. Rename the status quo.
There’s a fifth step, familiar to all Trump watchers: Declare victory. Accordingly, Trump said the USMCA is “the most important trade deal we’ve ever made by far,” and “the most modern, up-to-date, and balanced trade agreement in the history of our country.” “We’ve lost so many jobs, over the years, under NAFTA,” Trump said at the White House on Oct. 1. “With this agreement, we are closing all of these terrible loopholes. They’re closed. They’re gone. They were a disaster.”
Eh, maybe. But analysts girding for changes wrought by the new USMCA aren’t finding much. “A critical part of the new NAFTA deal was accepting a new name,” Bank of America Merrill Lynch wrote in a memo to clients. “President Trump believed that NAFTA was a ‘disaster’ and ‘one of the worst deals in history. Trade deals can get done that involve mainly symbolic concessions by U.S. trading partners.”
BAML notes that the slight increase in U.S. access to the Canadian dairy market—a big boasting point for Trump—will affect just 0.0003% of U.S. GDP. Changes meant to increase the use of higher-paid American and Canadian workers in auto manufacturing will have at least one negative consequence: pushing up car prices. And Trump is leaving in place, for now, those tariffs on steel and aluminum imports from Canada and Mexico, a move many economists consider worse for economic growth than the old NAFTA rules.
Focus turns to China
Whatever. With the terrible NAFTA on the way out, Trump now seems determined to focus more intently on China, teaming up with his newfound allies, Canada and Mexico, as well as Europe and Japan, if can make nice with those countries. Trump has already imposed tariffs on half of all Chinese imports to the United States, and he has threatened additional taxes all of the $500 billion worth of stuff China sends to the United States each year. Prices would rise on thousands of everyday products if that happens.
But not to worry. Trump will probably work out a few changes with China, announce a huge breakthrough, and rebrand the U.S.-China trade relationship as another terrific deal that never would have happened without him. Just as with Canada and Mexico. Right?
Well, maybe, but not any time soon. China is probably reluctant to do anything before the U.S. midterm elections in November, since a setback for Trump and his fellow Republicans could weaken his hand on trade and strengthen China’s. Meanwhile, American exporters hurt by tit-for-tat sanctions are losing access to foreign markets, which may be hard to regain as foreign purchasers line up other supply sources. “The completion of the NAFTA deal does not alter our view that the U.S.-China trade ‘war’ will get worse before it gets better,” BAML advises.
Trump can label his trade developments with China any way he wants to. But American consumers become jaded and cynical if you pitch them too many deals too good to be true. On trade, one may be their limit.
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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman