PRESIDENT TRUMP’S aggressive and unpredictable approach to trade policy demands a new definition of success. Call it the “could have been worse” standard. His threats to pull out of existing free-trade agreements and slap tariffs on trading partners for spurious national security reasons portended so much disruption that he gets points for not fulfilling his protectionist potential. That’s what happened in his renegotiation of the U.S.-South Korea trade agreement, and in the deal he cut with Europe to postpone auto tariffs in return for more soybean sales.
Now, fortunately, Mr. Trump also has retreated from the brink with respect to America’s second- and third-largest trading partners, Canada and Mexico. After the completion of tense last-minute talks with Prime Minister Justin Trudeau’s Ottawa government, all three countries are now committed in principle to a replacement of the North American Free Trade Agreement, which Mr. Trump derided, wrongly, as a disaster for the United States. In its place will be a pact he calls the United States-Mexico-Canada Agreement, “the most important trade deal we’ve ever made by far.”
Well, it is that — in the sense that it avoids a major disruption in hemispheric supply chains that would have resulted if Mr. Trump carried out his threat to dump NAFTA altogether. In reality, though, this bargain basically tweaks NAFTA, by forcing, or attempting to force, more automotive production to occur in the United States rather than cheaper-labor Mexico. The means of doing this are tougher, more U.S.-friendly “domestic content” rules and a de facto $16-per-hour minimum wage for a large chunk of production. To get the deal with Canada, Mr. Trump agreed to retain arbitration procedures Canada wanted in return for a somewhat larger U.S. share of Canada’s highly protected dairy market: 3.59 percent of it, to be exact. Though symbolically important, that victory for American dairy producers amounts to some tens of millions of dollars per year, a rounding error in the $500 billion-plus cross-border flow of goods and services.
Notably, the above measures have nothing to do with “free trade” but rather enshrine a norm of “managed trade,” reflective of the Trump team’s misguided zero-sum mentality. As such, they might lead to more market-rigging mischief in later years. For now, though, this seems a price worth paying for a wider trade truce, economic stability in the Western Hemisphere — and the preservation of the essential NAFTA framework.
Mr. Trump agreed to insulate Canada and Mexico from any potential auto tariffs, the threat of which he is retaining as pressure against other trade partners, such as Europe and Japan. He would not lift steel and aluminum tariffs. Even in that regard, there might be a silver lining, though, because Mr. Trump announced, regarding tariffs generally, “I’m using them to negotiate,” which is better than preferring tariffs per se, as he has sometimes implied.
Congress still must scrutinize and vote on Mr. Trump’s handiwork. But if trade peace can be restored among the United States and the long-standing partners with which it has relatively minor commercial disagreements, this country would be in a better position to confront the nation with which it has the most legitimate grievances, China.