Bill Owens: NAFTA - Round 7 With A Twist

Mar 8, 2018

The seventh round of NAFTA negotiations are set to begin in Mexico City in the next several weeks, with the word coming out of Canada that the Canadians are very pessimistic about this process.  In particular, they view the Americans as having little, if any, flexibility due to the policies and rhetoric of the Trump administration. 

In the trade world, there is a concept known as counter veiling duty which is a tax imposed on imports to prevent dumping.  “The 2018 White House Economic Report of the President” (the “Report”) which he recently signed is a report that might sarcastically be entitled “Counter Veiling Theories”.  This report debunks a number of the President’s talking points regarding US/Canada Trade.  The first is that we have a trade deficit with Canada – how often have you heard that reported on the news  or spoken by Mr. Trump – the Report, however, says that Canada is among the “few countries” in the world with whom the US runs a surplus.  This is repeated numerous times throughout the Report. 

Second, the Report states that trade has helped the US economy grow, that economies are shifting away from manufacturing, that foreign trade has increased, that trade is of growing importance to the modern economy, and that America has a good record of success in the international dispute panels of the WTO (as well as under NAFTA) and that you can’t rework trade agreements to fix an import/export deficits. In this same vein, the Report states “trade and economic growth are strongly and positively correlated.” 

The Report acknowledges that trade deals create winners and losers, and that states along the border have been the biggest winners in NAFTA, but nonetheless, its overarching conclusion is that trade creates jobs and wealth, including some interesting citations to trade ratios that  reflect per capita income growth with trade.  Under the heading of what does industry think, there have been reports that the U.S.Trade negotiators have been called back to D.C. to discuss regional content requirements for autos with car company executives.  Aluminum and steel producers learned on March 1 that a 10% and 25% tariff respectively will be imposed which in our region means Alcoa will pay that tax when it imports aluminum from Canada—not good for U.S. jobs.  U.S. farmers headed to Mexico City to be a presence supporting trade at the latest round.  You might ask what industries support killing NAFTA, I’m trying to find one. Mr. Trump is concurrently quoted with the issuance of the Report as saying on the same day, “We lose a lot with Canada.  People don’t know it.  Canada is very smooth.  They have you believe that it is wonderful.  And it is for them.  Not wonderful for us.”  Clearly words delivered by a simplistic orator on a complex subject.

It is fairly clear that President Trump does not do much in the way of analysis of the facts, but rather feeds what he believes to be the populist beliefs of his base.  A recent meeting at the White House left those who attended believing the hostility toward Canada is growing, who can guess why.  On the flipside, the Mexican President cancelled his visit to D.C. based upon the “Wall” payment discussions. 

I wouldn’t be surprised if Mr. Trump Tweets that the declining unemployment rate, the rise in the stock market, and GDP growth are all attributable to his Trade stance. 

Unfortunately, Mr. Trump fails to recognize that retaliation will occur as demonstrated by the EU and Canada both announcing such plans in response to the tariffs on steel and aluminum.  Mr. Trump may take note of the 2-day drop in the market and the weakening of the dollar which are based upon a belief that protectionism is being stirred by the President’s actions.  Let’s see where the market goes, if he tears up NAFTA.

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.