The Fight to Rewrite the World's Biggest Trade Deal
This episode of the Journal is brought to you by business schooled a podcast by synchrony in season two of business schooled new host. Sarah Darby is meeting with with eight American entrepreneurs to find out how they're not just surviving but thriving subscribe to business school. Wherever you get your podcasts? The one of President Trump's biggest campaign promises was to get rid of the trade agreement. Nafta that after disaster and I call it one of the worst trade deals in the history of any country. Trump called NAFTA a job killing deal that needed to be undone and that promise to undo undo it helped propel him to victory in two thousand sixteen they came and they went to Washington and they did nothing but unlike those politicians I keep my promises now. He's closer than ever before to getting rid of Nafta this week Congress agreed to vote on the new trade agreement that would replace it called the US Mexico Canada agreement but while trump claims victory here. So do the people who often antagonize nice him house. Democrats said victory for America's workers. It's one that we take great pride. It great pride in advancing today on the show. How two sides that are opposed on so many issues both came to see this one deal as a victory and and was actually in the deal that made that possible? Welcome to the Journal. Our show about money business empower. I'm Ryan Newton and Caitlyn by it's Thursday December. Twelve I think I'm here to help record a podcast on Nafta that's my that's my goal. Then wait a minute. I didn't think this was on NAFTA. I thought this was on a Masada. I don't I know what do they call it. Well some people jokingly call it you smack you smack really yes but officially US MCA. You've you've officially have to say off flutters Josh. Zoom Brune covers economics and trade out of DC. He's been closely watching how you smack or US MCA came together. And why it it matters this really rewrite the rules of trade for all of North America. Mexico and Canada are the number one number two trading partners the United States and this is the deal that governs trade on this whole continent basically and so because of how big the US is. How big this trait? What is this is really kind of the world's largest trade deal the old rules of trade between the US? Canada and Mexico were established under NAFTA NAFTA the North American Free Free Trade Agreement was a republican idea Ronald Reagan. I campaigned on the idea of creating this North American Free Trade Zone on we live on a continent who's three countries possess the assets to make the strongest most prosperous and self sufficient area on earth. With of course the Republican Party had traditionally being the Party of free trade and under George H W Bush the first George Bush the US Canada and Mexico really police said about it negotiated this trade deal but they weren't able to quite finish it under George Bush's presidency and so fell to Bill Clinton to finally passed the deal get passed in nineteen ninety four twenty five years ago. One of the IDEAS BEHIND NAFTA was that it would help keep American. Companies Competitive Live globalization was bringing new players onto the scene and American industries needed. Help to keep up. One example is the American auto industry history. So you know you think of General Motors. Ford as these quintessential American companies but the only way they can compete with automakers in Asia Asia or in Europe is to be able to have those Mexican factories that aren't as expensive to operate as the American ones. That's the only way the American industry is kind kind of able to hold its costs comparable to its foreign competitors so you have to have this integrated North American chain of factories for autos to be able to compete okay. That's the economics of the auto industry. WHAT DOES NAFTA due to make that a possibility do us? It has a lot of restrictions and barriers that exist for most countries to try to do business with and that's especially the case in the automobile industry. You know if you want to bring a pickup truck into the United States that's manufactured in Europe or Asia. You have to pay twenty five percent tariff you wanNA bring in a forty thousand dollar pickup truck with twenty five percent tariff as an extra ten ten thousand dollars in the cost just from the tariff Mexico and Canada the only countries get outside of that tariff as part of their membership in Nafta and so you can put a a pickup truck factory in Mexico. Do that final assembly with Mexican wages bring it into the US at a price that is still attractive to American consumers and so so it's all these things that are what allow the economics of a trade agreement to work and so for twenty five years Nafta has been the the rules of the road. I mean it's been governed economic relations between the three countries here in North America and generally. How have those twenty five years been viewed you know? Most economists economists would say that NAFTA has overall been a great success. The trade between the three countries has grown enormously so most people would look at this and say it was a success but there are always critics and of course president trump became the most important president trump said when he was campaigning. But Nafta was the worst trade deal ever made NAFTA was the worst trade deal in the history. It's like the history of at this country. Nafta has destroyed New England. Ohio is less silly. One in three manufacturing jobs since NAFTA disasters and totally really disastrous NAFTA NAFTA one of the worst trade deals ever signed in the history of our country perhaps the worst ever signed in history. Frankly of the world you think of American manufacturing over the past twenty years and they're definitely been a lot of factories that have closed in have gone overseas Aziz and a lot of those did go to Mexico and so that's been the critique of president trump. He said that these deals had allowed. Companies to kind of suck the the US labor market away these deals had allowed Mexico to take advantage of the US steel US jobs. And that was you know. A critique Sheikh of Bernie Sanders as well and it's been a critique of a lot of labor unions that NAFTA kind of suck jobs out of the US and put them in Mexico you know it's tough for a politician to go to people in town where that happened and say well overall the US economy is much better off. You know yes your town lost all its jobs but you know the. US is a three hundred million person. Country Baba it's not a very compelling argument to give to people who actually did lose their jobs from the steel and one person who put it eloquently said. I think this was the Harvard. Economists Danny Rodrick who said something like trade deals produce more winnings than losing 's but it doesn't necessarily mean they produce more winners than losers. There's a lot of people that can still miss out from these types of deals and there certainly are those people I mean. That shouldn't be lost in this discussion. It was that message that helped president trump win key industrial states in his election so when trump took office making major changes to Nafta was at the top hop his agenda. What did Canada and Mexico? Say about this idea of renegotiating Nafta when it came up all three countries nude there were kind of some issues that it would be worth. Updating one is that nineteen ninety-four. You almost had no internet right. But now you think about how much commerce happens happens on the Internet so there was a sense that everyone had that it would be really worthwhile to come in and put some rules on digital trade. Another really big example is Zeta quarter century ago. Mexico's government owned its oil industry. It was nationalized industry and since then industry has been privatized and so that means that in the original original Nafta there are really no rules at all about trade in energy. All three countries are big energy countries. Actually and they didn't have energy provision in their trade agreement so there were you know there were a handful of examples like that out there where everyone knew it made some sense to update it but people were really afraid of how president trump was going linked to conduct the negotiation and in April of twenty seventeen president trump made his opening salvo. She threatened I to just just pull out of NAFTA entirely. Just blow it up entirely and go back to the rules that had been in place twenty five years ago it would have been a real mess for people that threat. It shook financial markets and led to a flurry of calls to the White House from business executives and it was two other calls one from the Mexican president and another from the Prime Minister of Canada. That helped convince trump to start negotiating. Instead didn't go. She held like a dozen rounds of of meetings. They would have a some in Canada. They would have a summit Mexico. They'd have a summit here in Washington they would go back and forth and it just looked like it was one of those things that wasn't going anywhere and president trump just got fed up with how slowly his trade agenda was moving and so president trump decided. You know what I am really gonNA use tariffs as a tool to get people to the negotiating table. And how did he do that. The first major tariffs he announced March of twenty eighteen where it gets steel and aluminum and use an interesting law. He used a log called called section two thirty two of a trade act from nineteen. Sixty two allows you to impose tariffs if you determine. There's a threat to national security under this Cold War era law. The president was able to say that importing metal like steel and aluminum from other countries had hurt America's the ability to make weapons tanks aircraft and that according to a report from the Commerce Department was a threat to national security it. It was a giant shock to kind of the global trading system when they did this almost everyone. Every major trading partner got hit with steel and aluminum tariffs and that was kind of the moment that that really did spur things forward. It led to a lot of anger in the countries that were hit but it did accelerate the pace of negotiations jump. Start them at jump. Starting a maps I mean stealing. Aluminum are big industries in North America trades rates. This was a big deal for Mexican candidate and interestingly is he imposed these tariffs on Canada. Right before a major g seven summit where. The world's leading economies all get together and Canada was the host of that year. That's a power move. Its power move. It's a heck of a gamble and I think even the now a Lotta people would question you know whether or not it was worth it. I remember you know this press conference. The Canadian Prime Minister Justin Trudeau gave save after those tariffs went into a fact and he delivered this line about these were national security tariffs and he said these tariffs are totally totally unacceptable for one hundred fifty years. Canada has been the United States is most steadfast ally from the beaches of Normandy. Normandy did the mountains of Afghanistan Americans and Canadians have fought and died together. How can you label us a national security threat? It led lead to a really kind of severe strain. I think in trust between these two countries so after the g seven what happened. It was a a little bit of a tricky road to to get negotiations back on track and in fact president trump used another tariff threat to galvanize things. He threatened that he was going to use those same national security tariffs but instead of doing it on stealing aluminum. He was going to do it on automobiles. It's an auto parts. He was talking about. Putting twenty five percent tariffs on every automobile and every autopart coming into the United States it would have been almost four hundred billion dollars of imports every single year so that threat is actually bigger than everything that's happened in the U. S. China Trade War put together some people compared this to kind of like threatening a nuclear bomb or something in the trade space. I mean. That's how big of a deal this was seemed to be going nuclear brought Mexico back to the table all the US and Mexico came close to agreeing to their own deal and eventually that Canada back to the table to the three countries finally came to an agreement it last year in October but that agreement still had to be approved by Congress. The amazing thing is that even when you have all three countries agreeing to this thing. You've you've still got to get Congress to vote on it and it's kind of funny. I mean when they were doing this in in twenty eighteen he had a republican controlled. Senate you had a Republican controlled House. But then November two thousand eighteen. The Republicans lost the House of Representatives. And so suddenly you had a completely different landscape scape. It's great that you have Mexican candidate agreeing but you have to get Democrats in the House of Representatives to support this trade deal now. What convinced the Democrats to get on board? That's after the break. This episode of the Journal is brought to you by business school a podcast by synchrony synchrony is changing what's possible awesome for people and businesses with consumer financing solutions digital innovations and data insights. That help them grow. And now business. Schools is back with with a new season and a new host Seraya Darby. She's meeting with eight entrepreneurs to find out how they're not just surviving but thriving new season new host. I new things to learn on season. Two of business schooled. Subscribe wherever you get your podcasts Welcome back the Democrats have spent the past year renegotiating parts of the US MCA and this week. They've announced what the final version looks like. There are new rules about energy digital data generic drug manufacturing their rules that give dairy farmers more access to Canada and rules. That require more vehicle. Parts be made by workers who earn at least sixteen dollars an hour which might help boost. US auto manufacturing. There's a lot in it but for Democrats probably the biggest one of all was the labor issue. Why was that the biggest issue you know? Democrats have been a little worried eight. I think at how successful president trump had been at appealing to people in the labor union community. Democrats viewed labor unions is like their traditional one of their traditional bases in one of their traditional centers of power so for a Republican president to come in and do something that the labor unions like. Actually kind of liked was pretty alarming to them. So what did the Democrats negotiate for. They wanted to make sure that Mexican factory workers had better better standards. They didn't want Mexican factories to just be like the very bottom of the barrel. Just dirt cheap wages. No safety standards quality standards words. They wanted to raise the floor on Mexican factories. So that the difference between an American factory to Mexican factory wasn't so severe rate so what the Democrats essentially are trying to do is kind of bring over some of the factory standards from the US to Mexico where there aren't such strong labor unions. It's in an attempt to even the playing field and essentially help American factories. Exactly okay so the Democrats spend a year renegotiating this trade deal and in the end. How different is what we have now from Nafta there are kind of significant provisions in a few of these areas like energy digital trade labor auto rural but overall probably eighty percent of trade? Or something like that. It's GonNa be pretty much the same between the new deal and the old deal. Economists Up told the Journal that this new agreement won't bring an economic boom to the US though there will be some benefits in particular industries like agriculture technology. The in manufacturing those benefits could take years to see but for now Josh says there's a more immediate impact the big effect here is is actually just having this uncertainty resolved. You know there's probably been a lot of companies who were trying to figure out exactly what they were GonNa do with their business US operations you know. Are you going to build a new factory in the US. You're going to build a new factory in Mexico or you can hire a Mexican factory as one of your key suppliers. There's is a lot of decisions like this that I think have been on hold and so now that you have an agreement in place. There's a lot of those things where there's no reason to wait anymore. You know that you're gonNA. It'd be able to have a Mexican supplier for your factory in Tennessee. You know you know you're GONNA be able to get Canadian steal your plant across the lake in Michigan and and so people can kind of get things going again and if US MCA is not that different from Nafta do you think it really is a victory for the president. I think it is. I mean the campaign pledge was to renegotiate the deal and they did that. The president's policy policy win comes at an incredibly tense time just an hour before house speaker. Nancy Pelosi announced this deal. She held a different press conference to to announce the Democrats were moving forward with two articles of impeachment against the president. So on one hand the Democrats are trying to impeach. The president went and on the other. They're working with him to achieve this major trade victory. Can you talk about the politics of this moment. And why they would do that. I think a lot of Democrats especially those who are in districts where frayed is very important. Couldn't afford to have this deal fall apart and have it be Their fault I mean a lot of them are fairly pro business themselves and they don't want to be the ones responsible for wrecking the economy in their district. Democrats have a lot of kind of self interest in supporting this deal as well. So it's not like they were handing him a victory for no reason and you know if you're a moderate Democrat and you're in one of these districts state elected a Democratic Congress but maybe voted for president trump by a couple of percentage points. Things you know now those guys ray will do commercials where they say. Do you know when the president was doing good things I worked with the president. I'm not someone who opposes every good thing that Washington Tim tries to do the. US MCA goes into effect. Once it's passed by all three countries legislative bodies he's in the US the house's expected to vote on the trade agreement next week with the Senate taking it up in the new year. And that's all for today. Thursday December twelfth the Journal is a CO production of Gimblett and the Wall Street Journal. A special thanks to we'll Malden for his reporting. Thanks listening. See You tomorrow.