President Donald Trump has, shall we say, unique methods in going about foreign policy.The president’s shock trauma approach to negotiating with foreign leaders often leaves both friends and allies either bewildered, aghast, or just plain confused. The president is uncouth. His demeanor and language can be outright obscene. He is far from the cookie-cutter “presidential” character.
But even his critics have to admit: Trump has made progress on the international stage in areas that were for years seen as insurmountable problems. This has been observed in a range of very important issues, from reconciliation on the Korean Peninsula to trade imbalances with China.
The latest example of the Trump method in action was seen in the renegotiating of trade on the North American continent.
North American Market Rules Get an Update
The treaty that had governed commerce between the United States, Canada, and Mexico was until recently the Clinton-era North American Free Trade Agreement (NAFTA). That changed on 30 November, when the three leaders of those countries signed the U.S.-Mexico-Canada Agreement, or USMCA.
President Trump was certainly most pleased with that milestone. While still a candidate in the 2016 race, Trump once referred to NAFTA as “one of the worst deals our country has ever made, from an economic standpoint.” While it is debatable just how bad NAFTA was for America, even its supporters understood that the twenty-five-year-old deal was in need of some tweaking. President Clinton himself admitted this openly during a recent speech in Canada. Restructuring trade rules with Mexico and Canada was a major priority for Trump since arriving in office. Negotiations surrounding a “new NAFTA” went on for over a year.
That period was one marked by not just a few of Trump’s signature threats. Even before Trump became president, he had made clear his intention to either alter the trade deal or withdraw from it. All throughout 2018, Trump warned of the impending American withdrawal from NAFTA. On several occasions, the president made it clear he would prefer bilateral agreements with each country independently rather than the existing unified one. The prospect of being cut out from a trilateral arrangement pushed the two countries to solidifying a deal. Still, negotiations ended up dragging on for months. Trump at one point even threatened Canada with U.S. tariffs should a new agreement not come to fruition.
Mexico’s leadership was a bit more on board from the start. The now-former president of Mexico, Enrique Peña Nieto, and new left-leaning President Andrés Manuel López Obrador, both supported Trump’s proposed trade deal. Ironically, it was the Mexico factor that presented the final hurdle. Because Mexico’s outgoing president Nieto was set to leave office on December 1, 2018, and 60 days are required as a review period, the deadline for providing the agreed text was the end of September 30, 2018. According to reports, negotiators from all sides worked around the clock and completed the agreement on a draft text less than an hour before midnight of the deadline date.
So what are the changes to North American trade introduced by USMCA?
First off, its important to emphasize that the deal isn’t a radical departure from what was already in place. USMCA is more like a NAFTA 2.0. With that said, there are some important alterations in the new agreement that will likely have serious impact on commerce between the three partners:
Country of Origin and Labor Provisions
One of the industries strongly affected by USMCA is automobile production. According to the new rules, cars must have 75 percent of their components manufactured in Mexico, the U.S., or Canada to qualify for zero tariffs. This was increased from the original 62.5 percent under NAFTA. Also regarding car production were new provisions on labor. USMCA requires that at least forty percent of automobile parts have to be made by workers who earn at least $16 an hour by 2023. That may not sound so drastic for an American or Canadian employee, but for a worker in Mexico (a country in which the average hourly wage is just under $2.50) it’s huge. Along the same lines, Mexico also agreed to pass laws giving workers the right to union representation, extending labor protections to migrant workers, and protecting women from discrimination as part of USMCA.
The Dairy Market
Disagreements on free access to dairy markets was probably the point of USMCA negotiations that got the most attention. Trump wanted Canada to end its steep tariffs on U.S. dairy products, claiming they hurt U.S. farmers. Prime Minister Trudeau had taken the position that the tariffs were necessary to protect Canadian manufacturers. In the end, the U.S. got Canada to open up its dairy market to U.S. farmers who are now allowed to export the equivalent of 3.6 percent of Canada’s dairy market.
Intellectual Property and Digital Trade
The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also includes new provisions to deal with the digital economy, including prohibiting duties on things like music and e-books, and protections for Internet companies so they’re not liable for content their users produce.
The U.S. came to side agreements with Mexico and Canada that would largely protect the two countries from tariffs on imported autos and auto parts. Canada would be allowed to ship 2.6 million cars to the U.S. without tariffs, which is a huge increase from the 1.8 million it sent last year.
Far from Over
Although the USMCA was signed by the three countries’ executives, Trump still has to get congressional approval for the deal to become U.S. law. It is far from a given that this will actually occur.
The first challenge will be getting the deal through the Democrat-majority House of Representatives, who may vote down the agreement just to deny Trump a foreign policy win. There are other more substantive complaints as well. The biggest is coming from worker unions in the U.S. who claim that enforcement provisions on USMCA’s labor laws aren’t strong enough.
Trump has indicated he may “strong-arm” Congress into ratifying the deal terminating NAFTA. That would force policymakers to choose between the USMCA or nothing.
While the diplomatic stage of the North American trade deal may be over, the issue of USMCA will be one of the major topics the new American legislature will have to address.