The real significance of the revised trade agreement with Canada and Mexico is what comes next … dealing with China.
The trade deal reached Sunday alters the North American Free Trade Agreement in ways that hand out benefits to both labor and business. Labor gets steeper local-content rules and high-wage input requirements for autos. Pharmaceutical companies get protection for their intellectual property that is even better than they would have won in TPP. American banks and financial institutions get rules protecting them from having to host data on servers in local markets, something they wanted in TPP but couldn’t secure.
TPP nations might make the same calculation Mexico has—that these concessions are worth it to gain access to the huge U.S. market.
The new USMCA contains language that appears aimed at China. It has provisions protecting trade secrets and barring government officials from sharing them inappropriately, hardly a major concern within Nafta. It also would allow any party to terminate the agreement if one country enters into a free-trade deal with a “non-market economy,” such as China.
Now that Trump has found his way to agree with one set of allies, some hope he will move forward to unify a trade bloc against China through the Trans-Pacific Partnership, a global deal that includes both Canada and Mexico.
Richard Haass, president of the Council on Foreign Relations, said, “Hope it becomes a precedent for TPP. I suggest the US-Pacific Trade Agreement (USPTA). What matters is that the US joins it; doing so would bolster our strategic position vis-a-vis China and our economy.”
In former president Barack Obama’s push for the Trans-Pacific Partnership, a free trade agreement that also includes Chile, Japan, Vietnam, Malaysia and other Pacific rim nations, he framed the deal as an update to NAFTA that would counter China’s growing economic influence. But Trump’s approach to China isn’t coalition-building; it’s badgering China into seeking new terms.
“The TPP was the carrot approach—create a new trade zone with rules that favor the United States and the other members, and in effect induce China to join on those rules,” Edward Alden, a senior fellow at the Council on Foreign Relations, told Quartz. “Trump threw away the carrot, and now he’s using the stick.”
U.S. pivots to China. With a deal in hand, White House officials believe they will have a leg up in their high-stakes battle with China.
White House officials are betting that concluding a trade deal with Mexico and Canada gives them more ammunition in their high-stakes battle with China on economic issues and national security.
A renegotiated North American Free Trade Agreement, Trump advisers argue, removes the possibility that a trade war could break out on the continent and will make North America a more attractive place for investment.
Foreign car makers are considering moving more manufacturing to North America from their overseas plants following the recent U.S. trade deal with Canada and Mexico.
Robert Lighthizer, the U.S. Trade Representative who negotiated the deal, has said that he wants to refashion U.S. trade policy to “return to the days where there was a substantial majority of people in both parties that voted for these trade agreements.” Despite the confrontational and sometimes ugly way in which it was achieved – with tariffs and the threat of more against Canada and Mexico – the new NAFTA could be an important step in that direction.
Charles Schumer, the Senate Democratic leader, said that “as someone who voted against NAFTA and opposed it for many years, I knew it needed fixing. The president deserves praise for taking large steps to improve it.”
Read more …