Hundreds of thousands of jobs hang in the balance during the renegotiations of the multi trillion dollar trade deal, the North American Free Trade Agreement (NAFTA). The current agreement between the massive economies of Canada, Mexico, and the United States of America for free trade has been put to scrutiny, with American president Donald Trump looking for a better deal.
Although the current President of Mexico, Enrique Peña Nieto, and the United States’ Donald Trump have forged a new trade agreement, Canada and its prime minister Justin Trudeau have been more reluctant in negotiations.
In order to keep this enormous international trade deal alive, the United States, Mexico, and Canada must be willing to negotiate for free and fair trade conditions between the three states. In order to preserve the multi trillion dollar trade resulting from NAFTA, the three nations must be willing to concede tariffs, subsidies, and other barriers to free trade in order to build cooperation and, well, free trade.
What is NAFTA?
On January 1, 1989, the US-Canada Free Trade Agreement started, bolstering the trade between Canada and the United States. By 1991, The US and Mexico began negotiations on a free trade agreement, which Canada later joined. The talks resulted in NAFTA, which was enacted on January 1, 1994.
According to the Office of the United States Trade Representative, NAFTA covers everything from trade to property rights, from investment to rules of origin.
NAFTA has led to the elimination of almost all tariffs and restrictive quotas between the three nations by 2008. One exception to this is Canada, which has retained its tariffs on agricultural goods, with the dairy tariff especially annoying the United States.
NAFTA has correlated with massive economic growth in North America. For example, trade between Mexico, the US, and Canada has increased from $290 million in 1993 (before NAFTA) to $1.1 trillion in 2016. Mexico has also seen the amount of foreign direct investment increase from $15 million to $100 million in the same time period. The US Chamber of Commerce has calculated that about 14 million jobs are reliant on NAFTA, and it creates about 200,000 new jobs every year with higher wages than before NAFTA.
However, economists such as Dean Baker and his Center for Economic and Policy Research also argue that NAFTA has destroyed American jobs and kept wages stagnant. They also argue that it has created a trade deficit between Mexico and the United States, and caused the loss of some 600,000 jobs (although many agree that most of this job loss would have occurred without the existence of NAFTA).
Many experts also argue that NAFTA helped boost the competitiveness of North American industries against other parts of the world such as the increasingly important People’s Republic of China. Without NAFTA, according to Gordon Hanson, the declining competitiveness of American manufacturing (especially in automotive production) would have lost jobs anyway.
So, why would so many American politicians, including Donald Trump, Barack Obama, and Bernie Sanders criticize NAFTA and go so far as wanting to completely scrap and renegotiate it?
During the campaign for the 2016 presidential elections, current US president Donald Trump had promised to renegotiate NAFTA. In 2018, President Trump made good on those promises, and began negotiations with Mexico, and later on, Canada.
The new version of NAFTA, known as the United States-Mexico-Canada Agreement (USMCA), includes provisions for improved work conditions, increased components made and assembled within North America, and increased wages.
However, Canada has been reluctant in joining this new trade deal. In late August 2018, the US and Mexico agreed upon a preliminary deal together, excluding Canada. Although the USMCA does not include all too radical changes to NAFTA, the removed threat to free trade has given the Mexican economy a slight boost, with steady GDP growth expected, and a bump in stock prices.
For Canada, the renegotiations are a little trickier. Ottawa wants to keep the Chapter 19 protections provided under NAFTA which allows Canada to challenge protectionist policies put up by the other two nations, but mainly the United States. As stated earlier, the dairy industry is heavily protected by the Canadian government, preventing American farmers from selling their dairy products to their northern neighbors.
For both Canada and Mexico, the negotiations go on, in order to fix NAFTA and come to the best arrangement.
So What Now?
For now, Canada has kept its Chapter 19 protections intact and the US has an expanded dairy market. However, there is more to do in order to create a new, lasting trade agreement.
Despite all the promises of upholding free trade in North America, new leadership in Mexico threatens to disrupt the renegotiations.
In Mexico, there is a new president to be sworn in in 2019. The president-elect, López Obrador, is a left-leaning politician, and his politics do not align with those of the current president of Mexico, nor that of the Donald Trump’s.
The shakeup in the leadership of Mexico and the United States means that any deal negotiated now may not be agreeable to in the future. And a possible change in party leadership in the US may lead to difficulties in negotiations.
Although trade renegotiations are underway for a number of reasons, the US, Mexico, and Canada must remember the fundamental goal of NAFTA: free trade. Trade negotiations must end up in less trade restrictions between the three nations in order to maintain their collective competitiveness against other world powers such as the EU and China. The US, Mexico, and Canada have much to gain or lose from these negotiations.
However, renegotiations must begin with cooperation rather than threats. The United States has already threatened to complain to the World Trade Organization if Canada decides not to lift import restrictions on wine. On the other hand, several major milestones have been made, with provisions that would encourage trade between the three nations, and discourage trade from outside of the trade union.
Contained within the USMCA is a sunset clause, under which it would expire after 5 years if the three countries decide not to extend the agreement, sparking new negotiations. A lasting agreement would be within the interest of the US, Mexico, and Canada, one that would encourage more free trade than now.
Free trade has led to unprecedented economic growth and trade in North America. That’s why the negotiators of the USMCA must create incentives to decrease trade barriers between Mexico, Canada, and the US, and provide a framework for complaints and flexibility in trade deals. One step towards this is the removal of the dairy tariff in Canada, and the retention of Chapter 19 free trade protections. However, the certain industries between the three nation, such as wine, are still closed off, and the current system for preventing unfair trade practices (Chapter 19) is considered ineffective.
Worth over $1 trillion, NAFTA is crucial to the economies of North America. Without it, trade would plummet and the large outputs of factories and farms from all three states would suddenly be without a market. The most important part of NAFTA is free trade, something that must be preserved and expanded under the USMCA.
Featured Image Source: USA Today