The Death of NAFTA As We Know It
It has been almost two years since Donald J. Trump, (back then a simple candidate for President of The United States) said during an interview for 60 Minutes that NAFTA (North American Free Trade Agreement) is “the single worst trade deal ever approved in [the United States]". Now, after two years of setting up protectionist policies and criticizing his neighbouring governments, Trump has achieved the biggest international win of his presidency. A win that may not benefit the economy, nor the US population, but Trump definitely.
On Sunday, 30th September 2018, the Prime Minister of Canada, Justin Trudeau, announced they had come to an agreement ending the two-year long NAFTA negotiations. Out of ten requirements that the Canadian side demanded from the deal, roughly five will be taken into account for the newly created United States–Mexico–Canada Agreement (USMCA). Apart from not sounding as catchy, the name has also less to do with free trade than NAFTA - which was one of the main goals set by the Trump administration dating to before he was elected for Office. Even though Prime Minister Trudeau calls the outcome a victory, it is actually a very pyrrhic one.
Despite being the second largest country on earth by size, it is a very small country in economic and political terms. With a lower population and a GPD almost two times smaller than California, Canada cannot compete economically with their more powerful neighbour. That is why when struck with tariffs and the prospect of losing all the benefits of the trade agreement they fought so hard thirty years ago - after a few battles they eventually curbed and succumbed to the US will. Their struggle awarded them with some reimbursements such as: the preservation of Chapter 19 of NAFTA, (Antidumping and Countervailing Duty Disputes are reviewed by a binational panel instead of a regular judicial review) to be able to do duty-free internet shopping from the US (below $150), as well as dropping tariffs on cars and some commodities started by the Trump Administration. However, they failed to achieve both expanding work visas and to secure their dairy market, while at the same time agreed for many concessions towards the US. Canada has simultaneously lost the battle and the war, but it was a war they could not have won. All they could get was a peace treaty in which they lost the fewest – and they did.
Donald Trump, just as anyone else in the North American political landscape, knew that the Canadians will sooner or later have to come into a consensus with the US and Mexico, in which they will be the losing side. Both his supporters and the opposition will have to acknowledge this win. However, this may not be a win for the common American. Just as when the first tariffs of Trump Era were introduced, economists, workers, and even the GOP were speaking out about how bad of a decision it was both for the economy and the industries. With the new deal, the situation will not improve drastically.
Many previous regulations stayed in place and the US is getting more and more protective of their economy. Isolationism still is very popular among many voters, mainly because its benefits appear much faster than the ones of free trade. For example, voters will be able to notice growing employment in companies, this is a direct result of protectionist tariffs which ultimately lowers international competition.
At the same time, it is easier for people to stay in their jobs for example, as coal miners (even though coal has not been profitable for a long time now) than to diversify, adapt to changing markets, and switch into a more economically sustainable industry, such as solar power. Our innate human nature makes us distrustful of change. Instead it encourages stability. And that’s what Trump is trying to accomplish with his policies: choosing a stable present based on the past that we are used to, over a step into the future, that is new and frightening.
The one thing we can learn is that no one can stop progress, no matter how hard they try. The more they do so, the longer it takes to finally give up and adapt, making the adaptation harder and lowering the profit in doing so. Trump has stated many times that he wants the world to stop laughing at the United States, and to start respecting it again. No one respected the US as much as when it was leading global progress and when they were dealing the cards in the international trade. If the US does not want to be eventually surpassed by someone, then this approach has to change.
A few months ago, Ivanka Trump struggled during an interview when asked about what she thinks was the Trump presidency’s greatest accomplishments so far. The main one, she said, was tax cut, which can definitely be classified as such, however, apart from that and the results of US-North Korea talks, the search becomes more difficult. Thanks to the new agreement Trump will now be able to add to his name a major deal supporting his claim that he is the ‘master dealmaker’. The only thing that can stand in his way to accomplishing that are the upcoming midterms and predicted change in the balance of power in the US government. Democrats may not be so willing to give Trump an opportunity to be immortalized with this deal and thus admitting a certain extent of legitimacy to his presidency. POTUS may need to use his famous deal-making skills once again, but this time not against disadvantaged Canadians, but a Government full of furious Democrats.