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President Donald Trump has been attacking trade for months, but believers in the value of international competition have drawn comfort from his reputation for empty talk and record of non-accomplishment. That record, along with a trade pact that has served the US economy well for decades, may be about to end.
Talks on revising the North American Free Trade Agreement (NAFTA) resumed last week — and the US is proposing several changes that would weaken and possibly even wreck it. Unfortunately, in trade policy, the president has all the power he needs to do real harm.
The administration says it wants to toughen Nafta’s rules of origin. At the moment, for instance, US car imports from Canada and Mexico must have 62.5 percent of their content produced in the three countries; there’s talk of raising that, and adding a new US-made requirement. Depending on how far they go, such changes could disrupt long-established supply chains, raise costs, and even increase US imports by switching demand to vehicles that are wholly produced outside Nafta.
The administration is also proposing to curtail the pact’s dispute-settlement system, which allows for the orderly resolution of trade complaints. These procedures matter, because they prevent small disagreements from escalating into trade wars.
Nafta’s system helped persuade Canada and Mexico that the pact would be run according to rules they’d agreed to, and not on a might-is-right basis — all the more vital with a US president who sees trade as a zero-sum game. Recently the US threatened draconian action against Bombardier, a Canadian aircraft maker. Changes that would further weaken Canada and Mexico in such disputes might make them wonder whether Nafta is still worth the trouble.
Perhaps the most foolish of the administration’s trade-policy ideas is that the revised Nafta should have a so-called sunset provision — so that it ends automatically after five years, say, unless all the parties agree to renew it. Certainly trade pacts need to be revised over time to take account of new circumstances; like every other such agreement, Nafta has ways of doing that. Building in a presumption that the agreement will end altogether without periodic recommitment cancels another crucial benefit — the promise of continuity that allows businesses to plan and invest for the longer term.
Nafta could stand some improvements, and some of the administration’s proposals (especially those drawing on the abandoned Trans-Pacific Partnership) are good. Lately, though, the focus has shifted to its worst ideas — measures that call the whole project into question — and with no intelligible purpose except to score political points.
The evidence is clear: Nafta has helped all its members, including the U.S., achieve greater efficiency and higher living standards. Undermining it now — or, worse, causing it to collapse altogether — would not
only cast those gains aside but would also risk imposing immediate and enormous disruption on businesses and workers in all three countries.
Whether the president understands it or not, his posture on trade has put the U.S. economy out on a limb. Before much longer, if he keeps this up, that limb is going to break.
—Bloomberg