Blog Post

AEIdeas

After months of negotiations, the US appears to have reached an agreement with Mexico on what adjustments to make to NAFTA. Negotiations with Canada, the third party to the free-trade agreement, have not been completed yet, but it is interesting to look at what has been agreed upon so far. Trump has regularly referred to NAFTA as the “single worst trade deal ever,” so one would imagine that any new agreement would look drastically different. Fortunately (and somewhat remarkably), that is not the case.

Certain aspects of NAFTA would change under the current agreement, but while these changes would make the free-trade agreement worse, they do not fundamentally change it. A little bit of protectionism for US auto and textile manufacturers here, a higher minimum wage for parts of the Mexican auto industry that is meant to destroy those parts of the Mexican auto industry there, but nothing as disastrous as some feared. Not ideal — and my colleague Claude Barfield rightfully dislikes pretty much all of it — but hopefully this will bring an end to the unnecessary uncertainty generated by the administration’s temper tantrums over this particular topic.

There is an additional element to the agreement that can prove to be more problematic in the long run: It would turn North America from a quasi-permanent free-trade area into a quasi-temporary free-trade area. But even that is not overly concerning: the treaty would not come up for review until six years from now, and there is a reasonable chance that the protectionists will, at that point, no longer control the White House.