President Trump’s specialty is to create crises and then claim credit for solving them. Last year, for example, he ratcheted up the rhetoric against Kim Jong Un — a.k.a. “Little Rocket Man” — threatening to rain “fire and fury” on North Korea. Trump now claims he and Kim “fell in love” after Kim sent him “beautiful letters,” and that, were it not for this bromance, “you’d be in a war” and “millions of people would have been killed.” In reality, no one thought a second Korean War was likely before Trump took office. That only became a serious risk because of his unhinged rhetoric.
Trump has applied this same template to the North American Free Trade Agreement (NAFTA), which he spent years lambasting as “the worst trade deal ever approved.” According to Bob Woodward’s book “Fear: Trump in the White House,” Trump was on the verge of pulling out of NAFTA in April 2017, and had to be talked back from the brink by senior aides. He grudgingly remained in the deal while launching high-pressure negotiations to rework it.
Lo and behold, just ahead of a U.S.-imposed deadline on Sunday night, the United States, Mexico and Canada agreed on a revamped NAFTA. Trump triumphantly proclaimed on Twitter that this was a “wonderful new Trade Deal,” “historic,” and “a great deal for all three countries.” “NAFTA is dead,” said White House trade adviser Peter Navarro. Long live the new United States-Canada-Mexico Agreement (USMCA).
In fact, the biggest change is the name of the trade deal, and it is not an improvement. Just try saying “USMCA.” It does not roll off the tongue the way “NAFTA” did. As for the substance, my Council on Foreign Relations colleague Benn Steil rightly describes the new agreement as “little more than margin edits.”
Trump’s biggest victory was in opening up slightly more of the Canadian dairy market for U.S. exports. This has long been an obsession for him. He complained in June: “Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers.” Trump was right about the Canadian tariffs. What he didn’t mention is that the United States still ran a $474 million dairy surplus last year, with U.S. farmers selling five times more dairy goods to Canada than U.S. consumers bought from Canada. In any case, milk products represent just 0.06 percent of U.S.-Canada trade, 99 percent of which was already tariff-free.
Under USMCA, the Canadians agreed to buy a little more dairy products from the United States. One analyst estimated the new deal “helps our dairy market by 0.015 percent more.” In return for this minuscule concession, Trump had to assure Canada and Mexico that he would not pound them with automobile tariffs and would drop his ill-advised demand to eliminate the “Chapter 19” international-arbitration mechanism in NAFTA, which he had claimed was a threat to U.S. sovereignty. Steel and aluminum tariffs imposed against Canada by the United States remain in place, as do retaliatory Canadian tariffs.
When it comes to cars and trucks, USMCA will incorporate the earlier U.S.-Mexico agreement, which states that to qualify for zero tariffs, a vehicle must have 75 percent of its components manufactured in North America, up from the current 62.5 percent. Moreover, beginning in 2020, at least 30 percent of the work on a zero-tariff vehicle must be performed by workers making at least $16 an hour — three times what a typical Mexican automaker makes.
Trump cites this as a victory, which it is if you’re a protectionist, but it’s not clear what the real-world impact will be. Automakers could choose to disregard the new requirements and pay a 2.5 percent tariff on cars. They could replace more workers with robots. They could redirect Mexican-assembled cars to markets outside the United States and Canada. Or they could choose to move more production out of North America altogether. Whatever happens, it is difficult to see how American consumers or even autoworkers will benefit.
The best part of the USMCA is to update the rules on the protection of intellectual property — but this largely repeats the work already done for the Trans-Pacific Partnership that Trump exited as soon as he took office. He would be well-advised to reenter and rename the TPP. Just call it the Trump-Pacific Partnership.
The changes at the margins that Trump achieved were not worth the Sturm und Drang of his contentious trade negotiations, which included name-calling against Canadian Prime Minister Justin Trudeau (“very dishonest & weak”) and labeling Canada a “national security threat.” As Bruce Heyman, a former U.S. ambassador to Canada, pointed out, the way Trump treated our northern neighbor — the United States’ closest ally — is “the definition of insanity.”
Trump is like a man who comes into a store and starts smashing everything in sight. Eventually he grows tired of the mayhem and proclaims he is being very nice to the shopkeeper by not continuing his reign of terror. Give him credit for acting rationally in the end, but don’t forget the previous 13 months of destructive irrationality and all the collateral damage along the way.