Among many stories swirling in the news these days, the announcement Sunday night about the revamped and renamed NAFTA took center stage in the business press, particularly during the first half of the week. What have we learned so far?
- The U.S. can credibly claim that it came away with a slightly better deal than it had, but it certainly was not all that was hoped for initially. The U.S. made progress on requiring that North American suppliers contribute more to auto production at factories with elevated minimum wages and union powers. This will primarily impact production in Mexico. We also got better access to dairy markets in Canada.
- Canada and Mexico held their own in negotiations, with most of their “wins" coming from not giving in to key demands from the U.S.: Retention of a key dispute-resolution mechanism, protection from threatened auto tariffs and a longer sunset clause of 16 years versus five.
- The new agreement is indeed updated for today's business environment. Interestingly, the template for many of those upgrades originated from the much-maligned Trans-Pacific Partnership (TPP).
One question that remains open is whether or not this new agreement - officially known as the United States-Mexico-Canada Agreement (U.S.M.C.A.) - is a template for solving the rest of the trade wars that we are currently fighting. If so, we might be in for a repeat of this process, which involved characterizing a trade situation as horrifically bad, imposing tariffs and credible threats of tariffs, and then negotiating a deal that is slightly better for the U.S. and calling it a huge win.
A recent poll will probably skew how these trade wars evolve over the coming months and years. Gallup found in July that a majority of Americans believe that Canada, the EU and Japan are treating the U.S. fairly when it comes to trade policy. Canada is already the largest export market for 36 U.S. states. The verdict is mixed on Mexico, with a more negative view of trade with that country coming – perhaps predictably - from Republicans.
On China however, the poll actually found rare agreement across party lines: A majority of Republicans, Democrats and independents all share the view that China's trade policy with the U.S. is unfair.
My View: Popular opinion clearly was in favor of getting a deal done to include Canada and try to bring this NAFTA uncertainty to a close. That should extend to efforts getting started with the EU and Japan. But for China, there seems to be a clear shift to an attitude that is bracing for an extended trade war. Businesses with connections to China should plan for that as well.
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