July 8, 2020

USMCA and Trade Policy

A modernized U.S.-Mexico-Canada trade pact took effect [last] Wednesday… The [USMCA] includes tighter North American content rules for autos, new protections for intellectual property, prohibitions against currency manipulation and new rules on digital commerce that did not exist when NAFTA launched in 1994.” Reuters

“A push by Sen. Josh Hawley (R-Mo.) for a historic Senate vote on whether the U.S. should withdraw from the World Trade Organization appears to have been scuttled [last week] by a new parliamentarian ruling.” Politico

See our previous coverage of the USMCA here. The Flip Side

Many across the political spectrum oppose the US pulling out of the WTO:

“Much of the media attention has been on whether USMCA marks an improvement over NAFTA. But there’s another question to ask. The original NAFTA made its debut alongside the birth of the World Trade Organization (WTO), but USMCA is coinciding with an assault on the Geneva-based institution. Does this pose problems for USMCA? Yes…

“USMCA’s chapter on labels, licenses and certification, for example, is written to prevent forum shopping where the dispute is strictly over text ‘incorporated’ from the WTO. This is because labels, licenses and certification impact over 90 percent of U.S. exports, such that any inconsistencies, in terms of lost predictability, would be too costly. And that’s the point. USMCA needs the WTO. It uses WTO rules, and even the WTO’s interpretation of those rules, on key provisions. USMCA and the WTO are complements, not substitutes… USMCA will fall short if it can’t lean on the WTO to the same extent that NAFTA did.”
Marc Busch, The Hill

Since the creation of the WTO, U.S. exports of goods and services have jumped from $700 billion in 1994 to $2.5 trillion in 2019. As a share of the domestic economy, exports have climbed from under 10 percent to 12 percent. The WTO has also encouraged lower U.S. barriers to trade, to the benefit of tens of millions of consumers here at home, as well as import-consuming U.S. producers…

“Like many critics of trade, Sen. [Josh] Hawley [R-MO] blames the WTO for a supposed decline in average real wages for American workers and for the loss of manufacturing jobs. In fact, average U.S. real wages have been rising since the mid-1990s after stagnating for the two decades before then. And while manufacturing jobs have declined, real manufacturing output and value added have increased, indicating that rising productivity – and not trade – is the cause… Instead of misguided calls to abandon the WTO, we need a rational, bipartisan discussion of how to fine-tune and reform a system that has served our nation well for more than seven decades.”
Daniel Griswold, The Hill

“Ultimately, there’s no real point to pulling out of WTO, and doing so at this moment would be especially reckless. The pandemic is a crisis without borders, and since COVID-19 began its spread, free trade has proven absolutely essential to the distribution of supplies such as medical tools and personal protective equipment. As the world hunts for a vaccine, international cooperation will be critical, and the WTO will likely play a vital role in these efforts, potentially facilitating the commercial distribution of a vaccine…

The U.S. needs to stay in the club. In fact, if we play our cards right, we could finally show some strength as an international leader during all the chaos. Storming off from the WTO, claiming the others aren’t playing fairly certainly won't improve our own position, nor will it keep other nefarious power players in check. Instead, we should lead by example and fight for the liberal values on which we helped found the WTO: non-discrimination, openness, and competition.”
Alice Calder, Washington Examiner

Other opinions below.

See past issues

From the Left

“As if to mock the new NAFTA, a respected Mexican labor lawyer and independent labor organizer, Susana Prieto, has been held for three weeks on fabricated charges… Prieto has been leading strikes and protests demanding better working conditions for workers in Matamoros on the Texas border in the Mexican state of Tamaulipas…It remains to be seen how the Mexican federal government will weigh in, or whether U.S. Trade Representative Robert Lighthizer will formally object…

“The fact is that [Andrés Manuel] López Obrador may be president, but he doesn’t totally control Mexican union-busting state governments in league with corporations and Mexico’s old-line phony unions. And if López Obrador can’t control what actually happens on the ground when Mexican workers try to exercise their rights as guaranteed by the USMCA, then the whole premise of the deal is called into question.”
Robert Kuttner, American Prospect

Regarding China, “Two years ago, when the trade war first hit, China’s $8.5 trillion stock market sank into one of its deepest bear episodes, as worries about the economic damage of decoupling took root. This time, tension with the U.S. hasn't even made a dent. Rather, mainland shares are on fire. The benchmark CSI 300 Index has rallied 14% this year, to trade at a five-year high. The S&P 500 Index, by comparison, is still in the red. Daily trading volume has exceeded 1 trillion yuan ($142 billion) for three consecutive trading days…

“Washington’s  attempt to block mainland businesses’ access to U.S. money — from the delisting of Chinese American depositary receipts in New York, to forbidding federal pension funds from investing in mainland companies — is only forcing Beijing to speed up its capital markets reform… As a result, we can expect China’s stock market to grow to 100% of its gross domestic product in the next five to 10 years, from 60% now, estimates CICC Research… President Donald Trump is giving China’s stock market a second wind.”
Shuli Ren, Bloomberg

“Many Americans believe (erroneously) that Trump is the first president to stand up to China… [But] From China’s standpoint, Trump is not so much tougher as he is different. Previous presidents tried to pressure China within the rules of the current global order; Trump prefers to act outside of that system. For instance, his predecessors turned to the World Trade Organization to challenge China’s unfair trade practices, filing 21 complaints between 2004 and early 2017 (with a strong record of success). The Trump administration, openly disparaging of the WTO, has submitted only two complaints, one of which was a response to China’s retaliation against Trump’s own tariffs…

“Chinese negotiators deftly convinced [Trump] to push off discussion of issues most critical to American business—state programs that heavily subsidize Chinese competitors, for example—to a ‘phase two’ of talks, which have yet to materialize. Instead, Trump settled for a narrower ‘phase one’ deal, signed in January, that was centered mainly on large Chinese purchases of American farm produce, but included little to alter Beijing’s discriminatory practices… From Beijing’s perspective, while a Democratic presidency may restore a more predictable form of American diplomacy, that may not best serve Chinese interests.”
Michael Schuman, The Atlantic

From the Right

Secretary of Labor Eugene Scalia writes, “One key provision of the USMCA requires 40 percent to 45 percent of automobile content be made by North American workers earning, on average, at least $16 an hour, which is a rate that is multiple times the typical manufacturing wage in Mexico…

“The USMCA breaks additional ground with what the director general of the International Labor Organization has called the most comprehensive labor chapter ever included in a trade agreement. Under NAFTA, Mexican companies undercut American prices in part because they were not held to the same labor standards we have for American workers. The USMCA changes this with high standards that are now fully enforceable. It puts American workers on a level playing field with our neighbors… The USMCA is certainly a historic bipartisan achievement by Trump, whose determination produced a trade deal supported by both labor unions and business along with Democrats and Republicans.”
Eugene Scalia, The Hill

“The reduction of trade barriers among the USMCA’s parties will strengthen U.S., Mexican and Canadian supply chains, returning manufacturing jobs to North America from China. Even before the Covid-19 pandemic exposed how North America had become too dependent on China for medical equipment and drugs, Beijing’s campaign of intimidation and censorship was already hurting international companies…

“Public and private leaders who are already working together to satisfy demand for Covid-related essential products should shift discussions to a long-term vision for adapting North American economies to the post-Covid world… One discussion topic should be how to build resilient supply chains that reduce the corporate and national-security risk from Chinese espionage and unfair trade practices…North American business organizations can help drive the near-term reactivation of regional production hubs and identify long-term ventures to capitalize on the repatriation of production to the region. All should work together to speed USMCA’s implementation in key industries such as automobile and pharmaceutical manufacturing, aerospace and energy.”
H.R. McMaster and Pablo Tortolero, Wall Street Journal

“Policies that support economic resilience and industrial capacity might not be opposed to the project of global engagement; they might actually be necessary to make that engagement possible. A United States that does not have ready access to medical supplies, military equipment, foodstuffs, and other key economic goods will be unable to exercise the responsibilities of a great power on the global stage…

Efforts at nurturing domestic industrial capacity are not incompatible with continued participation in global networks of trade… Today, many countries—such as Germany and South Korea—have used industrial policy to develop a certain economic infrastructure while also trading with the rest of the world. The choice between industrial policy and participation in multilateral institutions is a false one. What exactly a reformed vision of globalization should involve is up for debate, but it nevertheless seems possible to consolidate some of the gains from the current iteration of globalization while also addressing some key challenges of civic and economic integrity.”
Fred Bauer, The American Conservative

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