Trump begins renegotiating NAFTA ‘disaster’

Trade deficits: Both the USA and Canada buy more from Mexico than vice versa.

Yesterday the leaders of the USA, Canada and Mexico began the first round of renegotiating NAFTA, a free-trade deal between the three nations. How does it work, and does it need to change?

Donald Trump could be described as a political chameleon, frequently happy to switch his views according to the political winds.

But if there is one policy opinion that really can be pinned on America’s 45th president, it is his scepticism of free-trade deals. In 2011, before Barack Obama had even completed his first term, Trump tweeted: “We must stop outsourcing our jobs overseas and end our multi-billion dollar trade deficits.”

Much of his rage was aimed at NAFTA, the North American Free Trade Agreement. During his presidential campaign he described it as the “worst deal in US history”, frequently criticising his opponents, both Democrat and Republican, for voting in favour of a deal which, according to Trump, “devastated” American workers.

Having pledged to scrap it, Trump now plans to renegotiate. But his tone is still brusque: “If I can’t make a great deal, we’re going to tear it up.”

Free trade agreements such as NAFTA remove taxes on products traded between the countries that sign the agreement. These taxes are called tariffs.

The aim is to encourage trade, thereby lowering prices for businesses and consumers. NAFTA has been updated to include an agreement to set more environment regulations, as well as the North American Agreement for Labour Cooperation, which aims to improve work conditions.

Most economic analyses indicate that the agreement has been an economic benefit for the countries involved. Between 1993 and 2013, trade between the three members quadrupled, from $297 billion to $1.14 trillion. And trade is good, right?

Now the downsides. As it was easier to import products from Mexico, where wages are much lower, an estimated 683,000 jobs were lost in America because of the agreement. The places most hit were in the country’s manufacturing heartland: Ohio, Michigan, Wisconsin, Pennsylvania — all states that flipped to Trump last year.

Justin Trudeau of Canada and Enrique Peña Nieto of Mexico both support improving and keeping it. Trump is much more doubtful of its virtues. Who is right?

Trade-off

“The evidence is very clear,” say some. There are winners and losers from NAFTA, but there are far more winners. It has created thousands of jobs that are dependent on it. Free trade gives consumers more choice while reducing the cost of living. It is “the wiring that connects and provides power to large parts of the American economy.”

“Try showing these statistics to workers who lost their jobs because of NAFTA and now jump between unsatisfying, low-paid, part-time jobs,” reply others. The benefits of NAFTA have not trickled down to those who lost out, further widening inequality. And there is more to life than just buying cheap stuff.

You Decide

  1. Has NAFTA been good for the United States?
  2. “The economy is the most important part of politics.” Do you agree?

Activities

  1. In pairs, imagine each of you is the leader of a country with a shared border. Negotiate a trade deal between the two countries.
  2. Research the history of free trade, and write 500 words on whether you believe it is a good principle.

Some People Say...

“Politicians should accept reality, not try to overhaul it.”

What do you think?

Q & A

What do we know?
Yesterday the leaders of the United States, Mexico and Canada began the first round of NAFTA renegotiations. Canada and Mexico are generally very in favour of the agreement, while Donald Trump’s opposition to it was a key part of his presidential campaign. The initial talks will last until Sunday. We know that Donald Trump has threatened to pull out of the agreement if he does not get the changes he desires.
What do we not know?
Whether Trump really would follow through on that promise. Many economists say it would have a devastating effect on the American economy, but Trump has already showed that he is willing to take radical steps, such as his decision to pull out of the Paris Climate Agreement.

Word Watch

Trade deficits
The amount by which the cost of a country’s imports exceeds the value of its exports, ie, if you buy more than you sell. In 2016 the United States had a trade deficit of $55.6 billion with Mexico, and a $12.5 billion trade surplus with Canada; the country’s biggest trade deficit by far is with China: $309.6 billion.
Republican
Trump was particularly scathing in his criticism of John Kasich, his opponent in the Republican primaries. The governor of Ohio voted for NAFTA, which lost 35,000 jobs because of the agreement.
Mexico
It was expected that the free trade agreement would slow down immigration from Mexico to the USA, since products of Mexican manufacturing could reach the American market easily. But this was not the case.
Estimated
According to a briefing by the Economic Policy Institute in 2011.
Enrique Peña Nieto
Nieto has been president of Mexico since 2012. He has fallen out with Donald Trump in the past over the latter’s proposed border wall.

Subjects

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