The situation with the North American trading bloc has moved beyond heated talk to danger the agreement might collapse. Don't expect many winners.
From providing health insurance to Americans and addressing climate change to maintaining United States leadership in the world, the Trump administration’s strategy is “wreck from the inside.”
That’s not how the White House sees it, of course. It is “making America great again” and putting “America first.” Reality, however, doesn’t care what the administration thinks it thinks.
Among the many self-inflicted crises, the latest is the growing possibility that the 24-year-old North American Free Trade Agreement (NAFTA) will collapse because of Trump’s intransigence and ultimately a withdrawal by the United States. At stake are a $1.5 trillion continental trading zone and at least 14 million American jobs directly tied to NAFTA. Washington state sold more than $7 billion in merchandise exports to Canada last year, $2 billion to Mexico.
For someone who had a ghost-written book called “The Art of the Deal,” President Trump has proved an inept deal-maker. He’s laid down hard demands that would be impossible for Mexico or Canada to accept. Among them, slashing access to U.S. government procurement bidding, a “sunset” clause that would end NAFTA in five years unless all countries renewed it, and weakening or killing dispute resolution mechanisms.
Of course this reasoning applies if one assumes Trump wants to update NAFTA for the 21st century rather than bury it. Yet as is often pointed out, he comes from a developer mentality of “win-lose” in negotiations, rather than the “win-win” needed in trade. And he made his hatred of NAFTA a cornerstone of his campaign, calling it a “disaster” for America.
In fact, the United States has been the biggest beneficiary of the agreement. Disruption was felt in all three countries, especially Mexico. But now much of the American economy is built around the certainties of NAFTA. No wonder business is spooked. In theory, a NAFTA-less North America would revert to the old tariffs, some relatively low (but not for farm products).
New trade deals might be negotiated — eventually. But this elides the fact that entire industries have become tied into the continental trading system, including the supply chain for the U.S. auto industry. The new disruption will kill jobs, not bring them home. The administration has no Plan B. Nor, in its rhetoric against offshoring of work (most to China and south Asia), has this billionaire-laden administration proposed penalties for big businesses that do so, rather than attacking NAFTA.
If the United States kills NAFTA, the consequences will reverberate far. Mexico will certainly be plunged into a recession, risking political instability and guaranteeing new immigration to el norte, wall or not (Hey, kids! Let’s create a failed state on our southern border!). The new economic nationalism displayed by the former leader of the Free World will encourage the same elsewhere — we tried this in the late 1920s and how’d it work out? Meanwhile, China will see an opening to expand its “one belt one road” global initiative.
I’ve been wondering what would end this very old expansion. A Fed misstep? Tech-stock collapse? American “preventive war” against North Korea? Now add the fate of the North American economy. If Wall Street hasn’t yet awakened to the danger of this administration, just wait.
Today’s Econ Haiku:
The Lummi said no
To corporate hush money
They know what’s fishy