What Are Trump's Economic Priorities?
NAFTA renegotiations finally began this week. The trade deal became a focal point of Trump’s campaign when he blamed NAFTA for outsourcing working-class jobs and accelerating the decline of American manufacturing. Now Trump has the opportunity to reform the agreement that he once promised to dismantle.
What Does the White House Want to Change?
Last month, the Office of the United States Trade Representative released Trump’s list of goals. In some respects, the plan is relatively modest. It retains — or even promises to strengthen — key elements of the original text. This includes portions relating to labor, the environment, and health and safety standards.
However, his plans also call for some significant changes. Most notably, Trump wants greater freedom to restrict imports from Canada and Mexico. To that end, he plans to scrap certain restrictions on the use of safeguards — a common form of trade remedy. He also wants to do away with the dispute settlement procedures designed to police those remedies.
Both moves represent departures from the status quo. It’s important to keep in mind that trade agreements don’t just encourage market liberalization. They also establish limits on what countries can do with their trade policies. Specifically, trade deals try to restrict discriminatory practices, i.e., exactly the kinds of policies about which Trump complains so frequently.
Granted, even with these restrictions, remedies are controversial. Countries often allege that trade partners impose barriers such as safeguards without just cause. That’s precisely why NAFTA members originally agreed to a robust process for dispute settlement. The process ensures that countries, including the U.S., have legal recourse when remedies are abused.
Trump wants to abandon those rules and, instead, have greater leeway to use safeguards and less oversight of White House trade policy decisions. He thinks the current rules unfairly handcuff the U.S., leaving it unable to defend itself from others countries’ unfair practices.
Are These Reforms a Good Idea?
Trump’s supporters have thus far applauded his aggressive posture on trade. Even some Democrats agree with his promise to correct America’s trade imbalance and promote domestic jobs. But while the president’s goals are reasonable, his plans for NAFTA are problematic.
Trump’s “America first” approach to economic diplomacy places heavy emphasis on protecting the U.S. market from foreign competition. This exposes America’s exporters to trade retaliation. There are already signs that key markets are losing patience. Beijing has threatened to retaliate against Trump’s recent aluminum duties by targeting U.S. soybean exports. Closer to home, Trump has already alienated Mexico with his plans for a comprehensive border tax as well as Canada when he applied new barriers to lumber imports.
Trump’s strategy is shortsighted. Each time he closes off — or threatens to close off — a portion of the U.S. economy, U.S. exporters’ vulnerability to retaliation increases. For its part, Canada has already considered a number of responses, including targeting U.S. coal — an industry that Trump has repeatedly promised to bolster.
And it’s not just export volumes at stake; it’s also jobs. Trump’s principal critique of NAFTA is that it costs American jobs. But he ignores the over 6 million jobs currently tied to doing with business with Mexico and Canada. By focusing on protection from imports, rather than export promotion, Trump is putting those jobs at greater risk.
Will Trump Get What He Wants?
Trump’s strategy relies on the assumption that the U.S. holds all of the bargaining power. And he’s right that we are in a powerful position.
Ironically, however, America’s leverage derives largely from how much it imports. The U.S. is the principal export market for both Mexico and Canada. That benefits Trump because it lends weight to his threats. Neither Mexico nor Canada want to lose valuable access to the U.S. market.
But it’s not that simple. Both Mexico and Canada have taken steps to shore up trade relationships elsewhere. Last spring, Canada finalized its new deal with the European Union. And last month, Mexico expressed its interest in a bilateral agreement with China.
If Trump persists in alienating key U.S. trade partners, he will continue to drive them away from U.S. markets. And, as countries grow less reliant on American consumption, Trump is going to find his bargaining position significantly weakened.
Ultimately, it’s telling that major segments of the U.S. economy — notably car manufacturers — are worried about his plans. America’s automotive industry relies crucially on affordable parts from abroad. Given Trump’s supposed commitment to restoring American manufacturing, it would be unwise to put his administration on a collision course with these industries.
Jeffrey Kucik is an Assistant Professor in the School of Government and Public Policy at the University of Arizona.