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Mason experts explain the good and bad coming out of the NAFTA negotiations

September 6, 2018

Dan Griswold

The Trump administration would be in fraught territory if it tried to finalize a bilateral trade deal, with Mexico and without Canada, as a replacement to the 1993 North American Free Trade Agreement, a George Mason University research fellow said.

“The Trade Promotion Authority that the administration is operating under doesn’t allow them to negotiate a bilateral agreement with Mexico and get fast-track treatment by Congress,” said Dan Griswold, a senior research fellow at Mason’s Mercatus Center and co-director of the Trade and Immigration Project.

When U.S. Trade Representative Robert Lighthizer informed Congress he would be renegotiating NAFTA, he said negotiations would be with Canada and Mexico, so his only authority is to negotiate a trilateral agreement with those countries, Griswold said.

But beyond the legal questions, “Canada is far and away our biggest export market,” Griswold said. “Our commercial relations with Canada are significantly more important than those with Mexico, though they are both important.”

Negotiations between the countries were expected to resume on Sept. 5, after a week in which Trump lashed out at Canada for not agreeing to what the Canadians viewed as unfavorable terms for a new agreement, the Washington Post reported.

Maurice Kugler

Maurice Kugler, a professor of public policy at Mason’s Schar School of Policy and Government and a former senior economist at the World Bank, wondered how Trump’s abrasive style, especially on Twitter, will affect relations between the countries.

“There has been a lot of harsh rhetoric with Canada and Mexico that is likely to have an impact on the potential for cooperation in the future. The level of trust is not the same,” Kugler said.

“With Mexico, I won’t say relations are in tatters, but it leaves them somewhat bruised. And with a new president of Mexico coming in who is perceived at being more of a hard-liner, who knows how things will evolve?” he said. “With Canada, I won’t say relations are in limbo but a wait-and-see situation as to whether [Canadian Prime Minister Pierre] Trudeau and Trump can work together.”

As for the part of the deal hammered out between the United States and Mexico, Griswold sees good and bad.

The agreement addresses digital trade and protects genetically modified organisms against protectionist regulations, he said. But to escape tariffs, 75 percent of a car’s parts and amenities must be made in North America. That’s up from 62.5 percent.

“Supply chains have been designed to meet that [62.5 percent] standard,” Griswold said. “There was no reason to change it other than the protectionist sentiment on the part of the president and Ambassador Lighthizer to reclaim more production for the U.S. auto industry.”

Griswold also took issue with a rule that 40 to 45 percent of an automobile’s content must be made by workers earning at least $16 an hour.

“That smacks of managed trade, which is government micromanagement of the economy,” he said. “The federal government shouldn’t be dictating to private businesses the wages of workers providing inputs. It sets a terrible precedent.”

“With the lowest wage being $16 an hour, that automatically means an increase in the cost of production, which producers would pass on to the customer,” Kugler said. “With a lot of the tendencies in U.S. trade policy at the moment, it’s more about the producers than the consumers.”

Dan Griswold can be reached at 703-993-4881.

Maurice Kugler can be reached at 703-993-3804 or mkugler@gmu.edu.

For more information, contact Damian Cristodero at 703-993-9118 or dcristod@gmu.edu.

About George Mason

George Mason University is Virginia’s largest public research university. Located near Washington, D.C., Mason enrolls more than 36,000 students from 130 countries and all 50 states and Washington, D.C. Mason has grown rapidly over the past half-century and is recognized for its innovation and entrepreneurship, remarkable diversity and commitment to accessibility.