Froma Harrop: Trump makes mess of trade, U.S. economy beware
America’s closest neighbors, Mexico and Canada, rank high on Donald Trump’s to-do list of allies to offend. The North American Free Trade Agreement, the president insists, is “the worst deal ever.” Actually, it’s been a mostly good deal for all three partners. But even if the U.S. stays in it, Trump’s crazy-man act has already done the dirty deed, damaging America’s ability to compete globally.
True to style, Trump started talks by bellowing invective against the negotiating partners. He repeatedly demanded an insulting wall with Mexico and turned the usual trade skirmishes with Canada into World War II-and-a-half.
Such intemperance has economic consequences. Canada and Mexico certainly want NAFTA to continue, but they are now taking steps to reduce their reliance on trade with the United States. Both have already signed new trade agreements with Europe featuring zero tariffs.
As Mexican foreign minister Luis Videgaray recently said, the demise of NAFTA wouldn’t “be the end of the world.”
If tariffs returned to North America, Mexican factories would have incentives to replace American-made parts with parts made in Europe — or in Mexico itself. Some economists predict that the big automakers would just shift production altogether to Europe or Asia.
Leaving NAFTA, the American Automotive Policy Council concludes, would amount to a “$10 billion tax” on U.S. manufacturers. U.S. makers of auto parts say it would force them alone to cut up to 50,000 American jobs.
Americans continue to hold talks on NAFTA, but Trump’s radical demands for staying in have raised the chances of a final meltdown. Canada and Mexico have already rejected as deal killers such requirements as subjecting NAFTA to periodic renewal. That would leave businesses perpetually racked by uncertainty. They’d be unable to make plans knowing that at any moment, U.S. leadership might sow new chaos.
ImpactECON, a trade consultant in Colorado, predicts that the end of NAFTA would lead to a net loss of more than a quarter-million American jobs over three to five years. Mexico and Canada would fare even worse. Who wins? Not North America.
Canadian Prime Minister Justin Trudeau responds to Trump’s outbursts with a kind of mocking friendliness. But Mexico’s fraught history with the superpower neighbor has resulted in more definitive calls to strike back. Some Mexican lawmakers have been urging a boycott of U.S. agricultural products. That would be no idle threat. Mexico accounts for a quarter of U.S. corn exports.
Furthermore, Mexico wouldn’t even have to look outside Latin America for agricultural replacements. Argentina is both eager and able to fulfill the demand for tortilla ingredients.
The farm belt may have had reasons to support Trump, but economic self-interest was evidently not among them. U.S. agriculture now enjoys a $20 billion surplus in global trade. Top exports include cotton, corn, soybeans and sugar beets.
American ranchers were hoping to enjoy expanded Asian markets under the Trans-Pacific Partnership. So much for that. Trump pulled the U.S. out. In July, Japan slapped emergency tariffs of 50 percent on imports of mostly U.S. frozen beef. Australia stayed in TPP, and its frozen beef now enters Japan with a far lower tariff.
If the president understands the ramifications of ditching free trade agreements and is just playing jester to his base, well, at least that makes some sense. It certainly does for Russians wishing us ill. But if he thinks there’s no downside to keeping American business — and our allies — in a perpetual state of confusion, then heaven help us.
NAFTA renegotiations were supposed to be sewn up by Oct. 17, but they didn’t come close. The pathetic show goes on, and the world takes the U.S. less seriously by the day.