Democrats Give Trump a Trade Victory—Even as They Impeach Him
Eager to be seen as doing more than taking down the president, Speaker Pelosi readies a “yes” vote on USMCA.
More than a year after the United States, Canada, and Mexico reached an agreement on an update to the North American Free Trade Agreement, its day in Congress appears to have finally arrived—despite the fact that the U.S. House of Representatives has been busy with its impeachment inquiry into President Donald Trump’s abuse of office and obstruction of justice. With House Democrats now firmly on board with the tweaked trade deal, thanks to the last-minute endorsement from Big Labor, and with Senate Republicans a guarantee to go to bat for whatever Trump wants, the new NAFTA (formally known as the U.S.-Mexico-Canada Agreement, or USMCA) is all but assured passage, perhaps even before Christmas. But what does the trade deal really entail?
Hang on, why are House Democrats impeaching Trump and handing him a political victory on the same day?
House Speaker Nancy Pelosi sought for months to separate congressional deliberation on the revised trade deal from the inquiry into Trump’s alleged high crimes and misdemeanors, a way to show voters that Congress can do all of its jobs. For months, House Democrats, spearheaded by House Ways and Means Chairman Richard Neal of Massachusetts, have fought the White House to improve the preliminary trade agreement to address concerns over labor enforcement and environmental protection, among other issues.
“This deal is much better than the original NAFTA—and infinitely better than what was initially proposed by the administration,” Pelosi, a California Democrat, said at a Tuesday press conference.
She had earlier said that passing the trade pact was “the right thing to do,” even if it benefited Trump politically, because it ensures export markets for U.S. farmers and gives U.S. manufacturers a little more clarity at a time of wrenching uncertainty. One big wild card was taken out of the deck late Monday, when Richard Trumka, the head of the powerful AFL-CIO labor federation, came out in support of the deal—a rare vote of support from Big Labor, which traditionally opposes free trade agreements and which was especially critical of the original NAFTA.
Trump calls this the greatest trade deal ever. Is he right?
If it were the greatest trade pact ever (it isn’t remotely close) it would be the work of presidents George H. W. Bush, Bill Clinton, and Barack Obama—not Donald Trump. The USMCA is essentially the old NAFTA—a tariff-free zone among the United States, Canada, and Mexico—seasoned with a healthy dollop of Obama’s doomed Trans-Pacific Partnership (TPP), and leavened with protectionist measures that will hurt U.S. manufacturing, as well as a few other ugly bits.
In other words, what’s good about the trade pact was largely either there already or lifted from Obama’s TPP, and what’s new is mostly bad—such as restrictive rules on auto manufacturing that will make cars more expensive, reduce consumer choice, and drive manufacturers overseas.
The new auto rules—an explicit demand that more car manufacturing be done inside the United States, and with more U.S.-made steel—are perhaps the worst part of the USMCA. A quarter-century ago, NAFTA laid the groundwork for an auto manufacturing ecosystem that seamlessly thrived across three national borders; even foreign manufacturers such as Toyota and BMW set up shop in the United States to make cars for export. Now that’s at risk.
“Pretty much the entire auto chapter—it’s really bad. NAFTA created an extraordinary North American supply chain, and the new rules strike at the heart of what has been the most positive thing about NAFTA,” said Veronique de Rugy, a trade expert at the Mercatus Center at George Mason University.
There are other ugly things about the new NAFTA that rankle trade experts, such as a weakened dispute settlement scheme, tweaks to intellectual property protection, and—perhaps most importantly—built-in time bombs that could end up killing the trade deal in a few years. The new agreement includes some sort of sunset clause that could make the pact lapse if one country decides to leave, though since the House hasn’t shared the text of what it has secured, nor has the White House sent formal legislation to Congress, it’s not entirely clear what is in the final agreement.
There are other worrisome elements in there as well, fruit of Trump’s predilection for statist interference in the economy. One clause could kill NAFTA if any of the three countries enter a trade pact with China, for instance; since both Canada and Mexico are in the slimmed-down TPP, which will almost certainly include China at some point, that’s a disaster waiting to happen.
The overarching concern among trade professionals is that the USMCA will shape any future U.S. trade deals, meaning all the warts, protectionism, and market-distorting measures will be a feature, not a bug.
“This is a template for future agreements,” said Neal, the point person on trade for the Democrats in Congress, at the Tuesday press conference.
Well, it can’t be all bad—why else would Democrats and labor support it, even knowing that it would give Trump a political victory?
There are some important updates to the original pact, especially concerning digital trade (largely lifted from the TPP) that will bring the 25-year-old trade pact more in line with the modern economy.
Progressives also argue that they have wrested a series of concessions out of the White House during months of contentious negotiations, including tougher labor enforcement, minimum wage standards for Mexican workers, stricter environmental rules, and a few big victories on things like pharmaceutical patent protections and dispute settlement procedures.
And the USMCA will finally put to rest concerns about Trump killing NAFTA, one of the most successful trade deals the United States has ever signed. After three years of uncertainty for U.S. farmers and manufacturers, simply securing the status quo at this point counts as a success—especially at a time when Trump’s trade mayhem regarding China, Europe, and Latin America are chilling business investment and increasing the chance of another recession.
“At the very least, it’s a good thing to remove the threat of a Trump tweet to kill NAFTA,” de Rugy said.
So will the new NAFTA mean more growth for the U.S. economy?
Not really. The United States already had tariff-free trade with both its neighbors, so the benefits of the tweaked USMCA will be very marginal: By the middle of the next decade, U.S. GDP could inch upward by as much as 0.35 percent thanks to the new pact, according to the U.S. government’s own study. Ditto for job creation: Over that same period, USMCA could create as many as 176,000 jobs—or roughly as many as are created every single month in the United States.
At the end of the day, Trump and his trade team, prodded by congressional Democrats, have managed to touch up the paint on what he has long called the worst trade deal ever made. It’s his deal, now—for better or for worse.