ANNOUNCING A new trade agreement with Mexico on Monday, President Trump hailed the deal as a huge improvement over the North American Free Trade Agreement and floated the idea of scrapping the old NAFTA name in favor of something like “the United States-Mexico Trade Agreement.” In addition to reinforcing his threat to leave Canada out of the emerging deal (about which more in a moment), Mr. Trump’s proposal to drop the word “free” as a modifier for “trade” represented a rare victory for candor in his administration: Whatever else it may accomplish, his proposed pact with Mexico will impose new and costly regulations on the flow of goods back and forth across the southern border of the United States. These, in turn, will create winners (protected firms and their workers, probably) and losers (consumers obliged to pay higher prices).
At the heart of the new U.S.-Mexico agreement is a series of measures the Trump administration intends to slow the relocation of automotive production to lower-wage factories in Mexico and beyond. Specifically, these will raise the minimum “local” North American content needed for a vehicle to enter the U.S. market tariff free, from 62.5 percent to 75 percent, and require that between 40 and 45 percent be produced by workers earning at least $16 per hour. The former responds to the reality of increased leakage of Chinese parts into the Mexican end of the North American supply chain; the latter constitutes what may be the first-ever industry-specific international minimum-wage agreement. The actual impact is difficult to foresee, but the spirit of these measures is clear enough: They express a zero-sum, “managed trade” mind-set, not a genuine commitment to an increasingly free flow of goods and services, which the original NAFTA embodied.
In that sense, the other major change Mr. Trump’s team negotiated, a 16-year life span for the deal, reviewable and extendable by the parties every six years, represents a possible saving grace. It allows for a future administration to re-liberate trade if so minded. For now, the challenge is to get Canada, the third member of NAFTA, to sign on, so as to minimize the disruption to regional supply chains. On the whole, Canada has little to fear from the new auto rules, given that it is already a high-wage producer. By giving Canada a Friday deadline to decide and threatening auto tariffs if it says no, Mr. Trump has made it hard for Canadian Prime Minister Justin Trudeau to participate without enduring a gratuitous humiliation.
In the end, Mr. Trudeau may well swallow his pride and his misgivings, because the U.S. market is simply too crucial to the Canadian economy. Then it will be up to Congress to approve or disapprove Mr. Trump’s handiwork — including all the details still to be ironed out among the parties. When lawmakers face that task, they should do so bearing in mind that this proposed deal represents ambiguous improvement over the economic status quo and constitutes a victory for free trade only in a relative sense — compared with the far more radical and costly protectionist policies Mr. Trump threatened.