Trump, Treaties, and the Truth

President Donald Trump has summarized his efforts on trade as having torn-up and thrown-away NAFTA, which he claims is one of the worst deals ever negotiated.

“NAFTA was one of the worst trade deals ever made.” – November 26, 2018

Of course, he claims the Joint Comprehensive Plan of Action (otherwise known as the Iran Nuclear Deal) was the worst deal ever negotiated.

His exact words were, “As I have said many times, the Iran Deal was one of the worst and most one-sided transactions the United States has ever entered into.” He has also described the agreement as “the horrible, one-sided Iran Nuclear catastrophe deal.” – November 26, 2018

Remember that Steve Carell movie, Alexander and the Terrible, Horrible, No Good, Very Bad Day?

Is that where Trump got his idea?

John Kerry and the Horrible, One-Sided, Iran Nuclear Catastrophe Deal?

Trump made a similar claim about the Trans Pacific Partnership (TPP).

“Look, we are making, and we have, some of the worst trade deals in the history of trade. We’re now making one, Trans-Pacific Partnership. TPP. A disaster, that deal is a disaster.” – March 31, 2016

Come to think of it, he made similar negative claims about the Paris Agreement on climate change, although he stopped short of saying it was the worst deal ever negotiated.

“We withdrew the United States from the job-killing, income-killing Paris climate accord. That was costing our country.” – September 29, 2018

Job killing and income killing?

Hey, so long as dying people on a dying planet can have coal jobs, and so long as those black-lunged coal miners faithfully vote Republican, screw those Prius-driving coastal elite liberals who want clean air and clean water, right?

Nope, seeing both sides of an issue would not be Trump’s way, would it?

Admitting he won some AND lost some are words that will never come out of Trump’s mouth, or his Twitter feed.

He never claims only half a victory, even when he loses.

He has to claim that not only did he save jobs and boosted incomes, he actually IMPROVED the environment.

“And we have the cleanest air now in the world. We have the cleanest water. Remember this. I’m an environmentalist. I want crystal-clean water. I want crystal-clean air.” – September 29, 2018

Donald Trump claiming that he is an environmentalist is like Sarah Huckabee Sanders claiming she is honest and transparent. Oh, wait, that really happened this week too.

How about this, then?

Donald Trump claiming that he is an environmentalist is like Donald Trump claiming he is a faithful husband. Yes, that’s better.

Since he wants to brag about it, let’s talk about Trump’s big win on NAFTA, shall we?

He refers to it as the USMCA, or United States-Mexico-Canada Agreement. Really, it could just be NAFTA 2.0, as he did not tear it up and throw it away but merely took an old picture and put it in a new frame.

He threatened.

He pouted.

He imposed tariffs.

He spoiled America’s relationship with Canada, one of our closest allies and the country to which the United States exports the most goods.

But in the end, as he does in all negotiations, Trump caved and received minuscule accommodations relative to the damage he caused.

But he still took a victory lap.

That reminds me of the old saying about never playing chess with a pigeon. Because even if you win, the pigeon will puff out his chest, knock-over all the pieces, and crap all over the board.

Trump is just an orange pigeon, it seems.

There are only six changes even noteworthy in NAFTA 2.0.

1. Country of origin rules

Under the original NAFTA, a vehicle must contain at least 62.5% of its components manufactured in the United States, Canada, or Mexico to avoid tariffs. The USMCA will require that component quantity to be 75%.

Sounds like a win, right?

Well, the first increase (to 66%) will not even happen until 2020.

Twenty-five vehicles from Ford, Toyota, Honda, Fiat, General Motors, Kia, Hyundai, Daimler, and Tesla already meet that first 66% threshold.

Twelve of them already meet the eventual 75% standard which will not be required until 2023.

But here is the thing: the USMCA specifies that these components must be manufactured within the three signatories to the treaty. A vehicle assembled in Mexico from 100% Mexican components would not be subject to a tariff if sold in the United States or Canada.

For all Trump’s claim of a great victory for the United States, what was really achieved was a modest victory for the combined three countries on domestic sourcing of parts.

2. Labor provisions

Anyone else see irony in Trump claiming credit for pushing Canada and Mexico towards a higher minimum wage, towards labor unions, and towards laws ensuring the protection of women in the workplace? These are all things he and the Republican party have opposed domestically with all their heart and soul. And legislation. And rhetoric.

By 2023, 40% of automobile parts have to be made by workers who earn at least $16 an hour for the finished product to escape tariffs.

According to the Bureau of Labor Statistics, every single American manufacturer likely already meets that standard, with the lowest average wage for any of the positions they track being $16.44.

Canada averaged $13.68 per hour last year, so it seems likely they are at or near the 40% threshold already as well.

That leaves Mexico as the treaty member which might have to raise wages as they do not already, in most cases, meet the standard.

It is a consideration though that labor means less and less each year in automobile manufacturing. In 1992, when NAFTA was implemented, a typical vehicle required 4.47 workers per vehicle when labor was divided among vehicles produced. That number was 2.09 in 2017.

Automation is driving employees out of the automobile manufacturing business. That means fewer assembly line and lower skilled workers and more employees with technical or engineering skills to repair the robots and conveyors when they break down.

And while most Mexican workers average around $8.00 per hour, the increase in these skilled (and therefore, better paying) jobs divided-into the fewer jobs overall in the factories, still allow some Mexico-manufactured vehicles to meet the 40% threshold for ‘high wage’ positions.

But for the vehicles that fall short, Mexico will need to do some math. The USMCA requires a tariff of 2.5% on vehicles which do not meet the standard by 2023. On a $25,000 vehicle being exported to the United States, that 2.5% tariff would add $500 to the cost.

If a manufacturer building a vehicle in Mexico has an option to effectively double worker salaries (from $8.00 to $16.00, a more than $16,000 annual per-employee raise) or pay a $500 tariff they can pass along to American consumers, which do YOU think they will choose?

3. Dairy markets

US farmers get more access to the Canadian dairy market. This is a win for American farmers, especially dairy farmers in Wisconsin.

If the USMCA passes, it should be a boost to Trump in a state he likely must win to achieve re-election.

But the access is a minor victory, and it is noteworthy that the market share allotted to American producers (roughly 4%) is basically the same access to Canadian markets the United States would have been afforded had Trump signed the Trans-Pacific Partnership (TPP) negotiated by President Barack Obama.

4. Intellectual property and digital trade

The USMCA extends copyright provisions to 70 years after an author’s or creator’s death (up from 50) and modernizes the rules to include things which did not exist when the original NAFTA was signed, like e-books and digital music.

This is a good thing, but it also extended the length of time pharmaceuticals can be protected from competition from generics.

Canada’s government will spend more on prescription drugs under the new deal, as the country has universal healthcare.

The United States government will spend more on prescription drugs as the government (via Medicare, Medicaid, and the VA) is the country’s largest purchaser of prescription drugs.

Those additional costs to the government will either add to the deficit or will force reductions in other spending areas and will certainly be used as ammunition by Republicans looking to slash entitlements in the future. Those with private insurance or insurance provided their employers will see higher costs passed along (either in premiums or copays) and reduced coverage.

Guess who really wins?

Big pharmaceutical companies.

5. Section 232

Section 232 is the loophole President Trump used (designed to allow nations to take action in times of national emergency) to impose tariffs on Canada and Mexico which would have otherwise been prohibited under the agreement. Canada and Mexico demanded that loophole be closed. The USMCA only closes the loophole on automobiles.

6. Sunset

The original NAFTA did not expire. The USMCA will expire in 16 years unless renewed and will be reviewed every six years for potential changes. That makes sense.

To summarize:

NAFTA – Worst deal ever.

TPP – Worst deal ever.

Paris Agreement – Worst deal ever.

Iran Nuclear Agreement – Worst deal ever.

USMCA?

Well, Trump tweeted, “Just signed one of the most important, and largest, Trade Deals in U.S. and World History. The USMCA will be fantastic for all!” – November 13, 2018

Notice a pattern?

If someone else negotiated a deal, it is the worst deal ever, even if it is working?

If Trump negotiates a deal, even if he lost and was humiliated (like when he met with North Korea), it is the best deal ever negotiated (and how could it not be) by the world’s greatest deal maker.

If only the fantasies playing out in Trump’s addled brain were reality.

The reality is that the USMCA made only these six minor modifications to NAFTA.

Country of origin and labor rights are targets in many cases already met (targets which did not exist before NAFTA) and the future targets are set to coincide with where the trends were heading anyway. Looking at trend lines on a graph and setting a goal for five years out, when that goal is exactly where the trend line will be in five years anyway (and which requires no changes or additional efforts to achieve) is NOT a victory.

Score those both neutral.

Intellectual property and digital trade were updates based on the technologies developed during the 25 years NAFTA has been in effect. This was an overall positive, until the pharmaceutical component was added. Now, it is several small positives and one large negative.

Score that a neutral.

Trump exploited a loophole to his advantage. In the new deal, he agreed to close part of that loophole with nothing offered by Canada or Mexico in return.

Score that a minor loss.

Dairy was a net win, but all Trump really achieved was getting something Barack Obama achieved with the TPP included in the USMCA. But still, credit where credit is due, especially as this has political upside for Trump as well.

Score that a minor win.

Is adding an expiration date something to cheer about?

No.

Score that a neutral.

The USMCA President Trump has signed and sent to Congress for ratification is 1992’s NAFTA with a few blots of White-Out.

Six minor changes, that’s all, over hundreds of pages.

Four neutral.

One slightly positive.

One slightly negative.

Guess what a slight negative and a slight positive get you?

Another neutral.

For all Trump’s bluster, the USMCA is basically a 25th anniversary edition of NAFTA.

And just like with music and movies, when a 25th anniversary edition is released, it includes some bloopers and bonus footage, maybe a few director’s cuts, but it is still the same old movie you have watched 100 times.

At least Trump made sure the copyright on that movie was extended another 20 years.

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