Mere hours before the activation of the Trump administration’s artificial deadline on trade negotiations, the U.S. and Canada were able to reach an agreement. Months of tense negotiations and warlike rhetoric resulted in a broad framework for a trade deal on Sunday, intended to replace the North American Free Trade Agreement, which the president has repeatedly called “the worst trade deal in history.”
The new deal is tentatively labeled the USMCA, or the United States, Mexico, Canada Agreement, and includes the North American trading block, which is identical to the preexisting partnership NAFTA protected. As expected, the new agreement drew praise from officials in all three countries as a positive step forward and an aversion of a potentially disastrous trade war that had been looming over the North American political landscape for more than a year. With that said, what does this deal mean for the U.S.? Ironically, more than two-thirds of the provisions found in the USMCA agreement are nearly identical to those in the recently demonized Trans-Pacific Partnership, or TPP. Other than that, most of the minutia of the agreement is business as usual for the three countries, with a few significant portions withstanding.
First, the new agreement opens up heavily protected industries in both the U.S. and Canada. Within the broad USMCA framework, the U.S. gains significant access to the Canadian dairy industry which currently receives protective tariffs as high as 300 percent, as well as import quotas. Under the new deal, American companies will be able to export four times as many dairy products to Canadian consumers.
Other than dairy, Mexico and Canada have also agreed to lower quotas on food products, including turkey, eggs, and wine — all of which will help farmers in the U.S.
Finally, the new deal includes a provision prohibiting tariffs on any new technologies that may emerge during the life of the agreement. But the contents of the new trade deal are not all positive.
Most of the major flaws in the new agreement stem from a fundamental misunderstanding of the nature of trade. First, the U.S. insisted upon a “sunset clause” of 16 years for the new deal, with scheduled meetings every six years between the countries to discuss if the agreement needs updating.
Second, the USMCA includes a clause that requires the U.S., Mexico, and Canada to manufacture 75 percent of car parts and 45 percent of truck parts, and they must be made by workers earning more than $16 an hour.
The new deal also neglects the dispute over aluminum and steel tariffs, thrust onto Canada by the Trump administration.
Again, these flaws stem from a misunderstanding of trade. The Trump administration has continually emphasized protectionist policies to benefit the U.S. over other nations, but it forgets the fundamental principle of free trade: The U.S. does not trade, its citizens do. The Trump administration insisted on a “sunset clause” because it sees foreign trade as something that needs to be managed, since its conditions constantly change. This mercantilist assumption ignores the fact that individuals, not countries, make decisions in the market and they make them in ways they believe will benefit themselves to the greatest degree, based upon their localized knowledge. Interfering with this process will hurt more Americans than it will help.
This protectionist attitude disrespects the agency of human beings to interact and exchange with whomever they please — without tyrannical government interference.
Americans residing in the “Rustbelt” might benefit from the arbitrary manufacturing quotas and wage floors laid out in the trade agreement, but it will be at the de facto taxation of any citizen who pays a higher price for a car or truck. The globalization of the automotive supply chain, while not without costs, is a net positive for U.S. citizens. Low wage workers in Mexico are not stealing jobs from blue collar Americans, they are pursuing their own goals as human beings and doing so by providing us consumers with cheaper products than we otherwise would have access to through the process of voluntary exchange.
The economy is not a business that needs to be micromanaged — it’s a catallaxy of diverse humans pursuing infinitely diverse ends, and it necessitates the utmost degree of freedom to serve each individual to the fullest extent.
Regardless, there’s no doubt the USMCA is a step in the right direction. While it did institute some harmful policies based upon flawed economic logic, it also remedied many of the flaws found in NAFTA. This new deal still contains tariffs and quotas, but the tariffs are few and far between, and the quotas are much higher than the current rate of export and will likely be of no consequence. The USMCA is a mixed bag, but we cannot sacrifice what is good in the present for a futile pursuit of what is perfect.
Erik Halvorson is a senior studying economics.