WashU Expert: NAFTA in a jiffy?

If this deal ends up a win, it will embolden Trump to use trade wars to seek better deals

Is Canada next to join the Mexico-U.S. trade agreement? (Photo: Shutterstock)

A new trade deal to replace NAFTA will require completion by the end of the week, with or without Canada — so it’s too early and too hazy to consider this a good deal or a bad deal no matter what President Trump calls it, said a Washington University in St. Louis trade expert.

“Hard to really say whether this is good or bad because there are so few details,”  said John Horn, professor of practice in economics at Olin Business School. “It’s not a bad idea if it helps to raise wages for U.S. and Mexican workers, but it may end up just shifting more work to Mexico.

“If I’m paying an average of $19 to $30 an hour per U.S. worker going by Bureau of Labor Statistics data, and $4 to $8 an hour on average in Mexico, then if the Mexican rate has to rise to $16 — for between 40-45 percent of each car made — I may shift more work from the U.S. to compensate and keep my overall wage bill fixed,” Horn said.

Horn

“And to justify that higher wage in Mexico, I’ll have to shift more skilled work to Mexico and train those workers better, which also will take away ‘good paying, high skill’ manufacturing jobs in the U.S,” he said.

One aspect of the deal currently under agreement between U.S. officials and Mexico — with Canada possibly entering into these existing bilateral negotiations — involves the share of the content of parts used to assemble cars in the U.S., Mexico and potentially Canada. This U.S.-Mexico trade agreement, which President Trump announced Aug. 27 would replace the North American Free Trade Agreement but not carry its name, includes language increasing the percentage of each vehicle to 75 percent (from 62.5 percent currently) that must be manufactured in North America to qualify to be duty free.

“But how will that be enforced?” Horn asked, again referring to details undisclosed. “Are we changing the rules on determining the percentage of each part and vehicle, or are they staying the same?”

Horn said that “without more details on the specifics,” it’s hard to know whether it’s a good or bad deal overall.

The timing is challenging: All parties — again, with or without Canada — have four more days, maybe.

“Mexico’s government will turn over in December, and to get this deal signed by the U.S. and Mexico before then, it needs to be finalized by the end of the week,” Horn said. Never mind if Canada is to get involved. And what of approval by a U.S. Congress or Senate with mid-term elections approaching?

This isn’t an attempt to halt the ongoing trade wars, either, Horn said.

“President Trump has implied — if not outright tweeted — that he thinks trade wars are good because they force the other countries to make better, more accommodating deals with us,” Horn said. “If he can spin this deal with Mexico as a ‘win’ for the U.S., it will only embolden him to continue along the path of using trade wars as a means to seek better deals.”

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