An Urban's Rural View

The Really Puzzling Thing About the NAFTA Renegotiation

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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Say this for President Donald Trump's meanderings on withdrawing from NAFTA: They're actually the least puzzling of the three puzzling things about the administration's approach to this issue.

Campaigning for president, Trump called the North American Free Trade Agreement "a total disaster," the "worst deal" ever negotiated. Last April, the president was on the verge of withdrawing but decided instead to renegotiate after phone calls from the leaders of Canada and Mexico and a visit from his agriculture secretary, who brought a map showing the areas that withdrawal would hit hardest had voted for Trump.

Four months later, with the renegotiation barely underway, the president reversed course and again threatened withdrawal (http://tiny.cc/… ). "Personally, I don't think we can make a deal," Trump said. "Because we have been so badly taken advantage of. They have made such great deals -- both of the countries, but in particular, Mexico -- that I don't think we can make a deal. So I think we'll end up probably terminating NAFTA."

These seeming flip-flops are, I'd argue, just Trump being Trump. When he's campaigning -- and he was definitely in campaign mode when he treated the crowd in Phoenix to this latest NAFTA-bashing -- he can sound radical, even fanatical. When governing, he's often more cautious. At the intersection of campaigning and governing, he sees his tough talk as a negotiating tactic. The dealmaker president likes to stake out extreme opening positions in hopes they'll yield bigger concessions.

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More puzzling than these threats is the inconsistency between the president's strident rhetoric and the relatively moderate specific demands he's making of Mexico and Canada. Seeing the administration's trade negotiators' 17-page "Summary of Objectives for the NAFTA Renegotiation" (http://tiny.cc/…), many free traders breathed a sigh of relief. Among other things, the document preserves the most important thing making NAFTA a free-trade agreement -- the duty-free movement of goods.

To be sure, Canada and Mexico will bitterly resist some of the demands, starting with the proposed change in dispute-resolution procedures. But they're likely to accept many others; several of the objectives were lifted directly from the Trans-Pacific Partnership deal and while Trump has withdrawn the U.S. from TPP, Canada and Mexico are still in.

Maybe the general language in some of the document hides game changers, but all and all it's hard to believe that even if every one of the administration's specific demands were met, the U.S. would come close to ending its NAFTA trade deficit. Which raises a question: If NAFTA is such a "total disaster," why isn't the Trump team demanding bigger changes in it?

Most puzzling of all, though, is making the deficit -- and especially the deficit with NAFTA -- a priority in the first place. It's exports and imports, not the difference between them, that create or destroy jobs; for past U.S. negotiators, the priority was expanding the former and reducing the latter. The Reagan administration, for example, persuaded Japan to "voluntarily" reduce its auto shipments while also battling to remove Japan's barriers to U.S. agricultural products. There was little discussion of whether these steps would lower the trade deficit. The deficit wasn't the point.

If the Trump team wants to make it the point, why start with NAFTA? The U.S. runs a vastly larger deficit in goods trade with China -- $347 billion in 2016, versus $75 billion with NAFTA (http://tiny.cc/…), (http://tiny.cc/…), (http://tiny.cc/…). Our negotiators are pushing China on intellectual property theft and several other issues, but there's no comprehensive effort to slash the trade deficit with China comparable to the NAFTA renegotiation.

Many economists downplay trade deficits, arguing they're offset by incoming foreign investments. Economists especially downplay bilateral trade deficits, which can be offset by bilateral surpluses with other trading partners. The administration apparently thinks these economists are wrong.

But if they are, if bilateral trade imbalances do matter, the imbalance that cries out for correction is the one with China. We buy $463 billion in goods from the Chinese. They buy $116 billion from us. By comparison, Canada and Mexico, between them, buy nearly $500 billion from us, in addition to running a surplus with us that is a fraction of that with China. So why the obsession with the NAFTA deficit?

Mexico is the biggest export market for American corn. Since the beginning of NAFTA in 1994, corn exports have increased seven-fold. China is the biggest overall foreign buyer of U.S. ag products, led by soybeans. American farmers don't want to lose either of these markets; they want to expand exports to everyone. The more the administration can focus on expanding exports, the less nervous about trade policy U.S. agriculture will be -- and the less puzzled.

Urban Lehner can be reached at urbanize@gmail.com

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