(What’s Left of) Our Economy: Flunking the NAFTA Laugh Test

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American Automobile Labeling Act, American Automotive Policy Council, auto parts, autos, Canada, domestic content, GDP, ImpactEcon, Jobs, light trucks, Mexico, Motor & Equipment Manufacturers Association, NAFTA, North American Free Trade Agreement, rules of origin, tariffs, Trade, Trump, {What's Left of) Our Economy

Remember the wonderful David Letterman show feature “Stupid Pet Tricks”? I couldn’t help but think of it while reading various news reports and analyses claiming that the demise of the North American Free Trade Agreement (NAFTA) will bring apocalyptic consequences to three signatory countries: the United States, Canada, and Mexico. But my parents always told me never to use the (needlessly harsh) word “stupid.” So instead, I’ll call them, “Silly NAFTA Studies.” Examining two that have attracted major attention will make clear why.

First, let’s look at findings released in August by a Colorado consulting firm called ImpactEcon, and revised in October, that was mindlessly written up by The New York Times, The Wall Street Journal, CNN.com, The Los Angeles Times, and many other big news organizations. According to this report:

“Overall, the results show that the US’s reversal of NAFTA leads to a decline in real GDP, trade and investment in the US, Canada and Mexico, with most of the losses resulting from Canada and Mexico’s reciprocation. The losses in low skilled employment are most significant, with employment declining by 256,000, 125,000, and 951,000 in the US, Canada and Mexico respectively. Production and specialization of production across the NAFTA region declines, particularly in those sectors with the highest levels of vertical specialization across NAFTA. The motor vehicles and services sectors in all three NAFTA countries decline, along with production of US meat, food, and textiles; Canadian chemicals and metals; and Mexican textiles, wearing apparel, electronics and machinery.”

Sounds awful, right? And especially dumb for President Trump, who won the votes of many American workers without glitzy high tech skills.

But buried here – glossed over in the press accounts – are results that should be screamingly obvious to anyone knowing anything about intra-NAFTA trade balances, the Canadian and Mexican economies, and in particular their heavy dependence on exporting to the United States: Canada and Mexico take much greater growth and employment hits from NAFTA’s termination than does America.

The passage quoted above shows a major gulf between the projected job impacts.  But the differential effects on real growth rates are even greater – and more threatening to Mexico and Canada. (The researchers assume that all three countries return their tariffs to pre-NAFTA levels.)

Real GDP:

U.S.: -0.09 percent

Canada: -0.48 percent

Mexico: -0.88 percent

And keep in mind two other considerations: The Canadian and Mexican economies are much smaller than the U.S.’ So the jobs losses are much more important for them, relatively speaking. Moreover, Mexico is still a developing country with real political stability problems. Growth and employment shocks like this would spell big, and possibly fatal, trouble for its ruling classes.

In fact, the damage to Canada and Mexico is so great that the (closely related) policy conclusions couldn’t be clearer (except to economics reporters). First, America’s NAFTA partners simply can’t afford to retaliate against the United States if the treaty is terminated; and second, as a result, a walk-out by them is wildly improbable unless Washington’s demands are positively draconian.

The second silly study (and related press coverage) comes from the Motor & Equipment Manufacturers Association (MEMA) – the trade association of an industry that has moved massive amounts of production and jobs to Mexico (much of it from the United States), largely to serve the American market, not the Mexican market or third country markets.

So obviously, the group’s findings should be viewed skeptically. Additionally, however, MEMA assumes (along with the ImpactEcon findings and another study – from another offshorers’ organization – the American Automotive Policy Council), that higher NAFTA requirements for origin rules will leave external tariffs low enough to enable auto manufacturers to ignore the standards and keep shipping product with lots of content from outside the hemisphere all around the free trade zone. Worse, without higher enforcement tariffs, the auto industry might also supply American customers to an even greater extent from even lower-cost economies, like those in Asia.

It’s true that the Trump administration hasn’t discussed raising those tariffs to levels that would bite. It’s also true that these moves would violate all three NAFTA countries’ World Trade Organization commitments on bound tariffs, and similar promises they’ve made in their other trade deals. But the folly of preserving that status quo is so clear cut that it’s entirely reasonable to expect a Trump-ian learning curve. And the President does prize his reputation as a disrupter.

Moreover, all he needs to do is look at the situation for sport utility vehicles and other so-called “light trucks.” Since their non-NAFTA U.S. tariff remains at 25 percent, even staunch opponents of a major treaty rewrite conceded that factories will return stateside if this status quo ante comes back. And P.S.: These products are increasingly dominating American passenger vehicle markets.

A second substantive reason for discounting this study concerns the auto parts makers’ claim that “Raising the automotive content thresholds and forcing automakers to verify the North American origin of more electronics and other parts now sourced from Asia would cause some parts manufacturers to forego NAFTA benefits.”

As just mentioned, the second fear is warranted if tariffs for the origin rules stay where they are. But the point about forcing the companies to verify where their inputs come from? Vehicle makers have already required to provide exactly this information for NAFTA’s entire life by the American Automobile Labeling Act. And they clearly view NAFTA as a huge success. Many companies in the parts supply chain are much smaller, and detailed reporting could indeed become an unreasonable burden for them. But many parts makers are plenty big enough to assume this responsibility easily (unless they don’t know where they themselves manufacture?). Much more important: The information would greatly aid policymakers and the public in (finally!) evaluating the impact of trade agreements and related policy decisions with a critical mass of precision.

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Im-Politic: Mainstream Media Again Foster NAFTA Myths and Think Tank Corruption

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Canada, donors, Google, Im-Politic, Japan, Korea, Mainstream Media, media, Mexico, NAFTA, Navistar, New America, North American Free Trade Agreement, offshoring, Peterson Institute for International Economics, Reuters, tariffs, think tanks, Trade, trucks, Trump, Washington Post, Woodrow Wilson Center

Although Donald Trump’s presidency might still turn out to be a watershed for U.S. trade policy, it already seems clear that trade policy coverage from the Mainstream Media will remain uniformly terrible, and unmistakably slanted toward the conventional approach that candidate Trump promised to disrupt. As recent articles from Reuters and the Washington Post remind, the bias takes both subtle and non-subtle forms.

Both pieces deal with the talks to renegotiate the North American Free Trade Agreement (NAFTA), which have resumed in Washington, D.C. this week. Despite its failings, Reuters correspondent Sharay Angulo’s article on the talks’ possible impact on multinational truck manufacturers contained some important information. For instance, she reported that 98 percent of the trucks exported from Mexico are sent to the United States and Canada – which oddly precedes a claim that most of these truck companies “have a similar strategy of building in Mexico to export to countries other than the United States.”

We also learn from her that more than half the “original parts” of U.S. firm Navistar’s Mexico-made trucks come from the United States and Canada (although this information comes from Navistar itself, and like other company-specific information re NAFTA, offshoring, and trade in general, so far can’t be independently verified). In addition, the article (again citing Navistar statistics) states that the firm exports fewer than half its Mexico-made vehicles to the United States – which seems to differentiate it sharply from its competitors.

Where the report veers sharply from the rational is in its unquestioning acceptance of the claim that “Higher tariffs on imports or reduced trade flows would raise the cost of production and of exporting to the United States. That would make trucks more expensive for all Navistar’s customers….”

What’s somehow missed by the author (and all the “experts” consulted by Reuters who allegedly agreed with this contention) is that this result would unfold only if Mexico retaliated against any Trump administration tariffs on its exports to the United States with new levies of its own that would hit manufacturers like Navistar. Given Mexico’s heavy dependence on parts imports to support its export-oriented truck and other industrial production, why on earth would its government take this step? Such retaliation would “raise [its] costs of production and of exporting to the United States” yet higher. Talk about cutting off one’s nose to spite one’s face.

Also missed by Angulo – how higher Mexico production costs could well achieve Mr. Trump’s revamp objectives by shifting truck manufacturing back to the United States. She’s correct in suggesting that low tariffs on Mexico exports to the United States may not suffice. But a logical (and seemingly obvious) implication is simply that higher tariffs will be needed.

The less subtle form of bias came in an October 6 Washington Post article previewing the latest NAFTA talks, and although it’s a more common variety, it was especially flagrant. One big problem is the authors’ (and their editors’) decision, with a single exception, to quote only critics of the Trump administration’s efforts.

Thus, readers are presented with the perspective of a Canadian trade lawyer, a former Mexican trade negotiator who now works for a D.C.-based consulting firm with many offshoring companies as clients, a Mexican business lobbyist who officially advises his country’s NAFTA negotiators, a former Canadian official, a former Obama administration economic aide, and four specialists from two Washington, D.C.-based think tanks.

A second big, and related problem – at a time when the intellectual integrity of such think tanks has come under a positively stygian cloud due to the uproar over New America’s firing of several researchers who ran afoul of big donor Google, the Post piece makes absolutely no mention that both of these organizations depend heavily on contributions from both companies and foreign government organizations with vital stakes in maintaining the NAFTA status quo.

For example, the latest info from the Mexico Institute of the Woodrow Wilson Center (itself a recipient of U.S. taxpayer funding), base for one of the specialists showcased in the piece, reveal that the organization receives contributions from no less than six big Mexican companies, plus Wal-Mart (a big importing business) and the main trade association of the American pharmaceutical industry – which manufactures in Mexico for export to the United States.

The Canada Institute, where the other quoted Wilson Center specialist is based, lists the Canadian government as a donor.

As for the other think tank relied on by the Post for (supposedly objective) expertise, the Peterson Institute for International Economics (PIIE), among its U.S. and foreign multinational funders that produce in Mexico for export to the United States are Toyota, GE, Caterpillar, IBM, Ford, GM, Samsung, John Deere, Procter & Gamble, and Mitsubishi.

PIIE also takes contributions from three foreign government entities that help their countries’ companies engage in export-oriented operations in Mexico: the Korea Institute for International Economic Policy, the Korea Development Institute, and the Japan Bank for International Cooperation.

In addition, in recent years, the Peterson Institute has also cashed big checks from Mexican building materials giant Cemex, and from the U.S. Chamber of Commerce – the organizational spearhead of America’s corporate offshoring lobby.

As I’ve repeatedly emphasized, the point here is neither that these think tanks’ findings and opinions lack merit, or they or their donors have no right to weigh in on important trade and other policy debates. It’s that these ostensible research groups should make clear who’s paying their rent – and that if they continue with what I’ve called deceitful idea laundering on behalf of their sponsors, the press should call them out.

The Mainstream Media, however, keeps failing to fulfill this responsibility – which can only deepen already profound suspicions that it’s abandoning its watchdog role and turning into an establishment lapdog instead.

Making News: On CNBC at 1 PM EST Today!

Tags

Canada, CNBC, CNBC.com, Making News, Mexico, NAFTA, North American Free Trade Agreement, Power Lunch, Trade, Trump

I’m pleased to announce that I am scheduled to appear on CNBC’s “Power Lunch” show today at 1 PM EST to discuss the negotiations to revamp the North American Free Trade Agreement (NAFTA) taking place in Washington, D.C. this week.  You can watch live on-line at cnbc.com or on most home cable/satellite systems.

Also, I’m still hoping to post a podcast of yesterday’s interview on Thom Hartmann’s nationally syndicated radio program, but I need to get the show’s permission first.  Stay tuned (figuratively)!

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

 

(What’s Left of) Our Economy: The Latest Bogus Case for TPP Revival

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Barack Obama, Canada, China, exports, George W. Bush, Mexico, non-tariff barriers, The Wall Street Journal, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

The case for the Trans-Pacific Partnership (TPP) trade deal pushed by former Presidents George W. Bush and Barack Obama, but killed by President Trump, was never serious. For example, America’s economy represented nearly two-thirds of the vaunted new free trade zone the Pacific rim deal would have represented. Many of its largest economies (notably Canada, Mexico, and Australia) were already connected with the United States by trade liberalization agreements. These and most other TPP members have depended heavily on amassing trade surpluses to generate growth, casting major doubt as to how widely they’d open their own domestic markets. And despite being widely touted as a counter to China’s growing economic and military influence in the region, the deal contained an immense back door for Chinese products in the form of sloppy rules of origin.

Now the Wall Street Journal editorial board has taken the bogus pro-TPP case another fact-free step further. It’s claiming to have unearthed evidence that Mr. Trump’s decision is already hurting American exporters. Except the only “evidence” presented is from a single Japanese study. And its findings consist not of developments that have already taken place, but of projections of what it thinks might take place.

Everyone is of course entitled to an opinion – or a projection. And maybe Tokyo’s National Graduate Institute for Policy Studies knows something about such forecasts that has completed eluded the U.S. Government – which has a terrible record predicting the results of trade deals. But everyone is also entitled to ask why the Wall Street Journal didn’t look at what is already known about export flows between the United States and its would be TPP partners since the Trump decision.

According to the U.S. International Trade Commission’s Trade Dataweb, year-to-date 2016-2017, America’s goods sales to these countries have grown by 5.36 percent. That’s somewhat less than the 6.38 percent increase in total, global American merchandise exports during that period. But not a lot less.

Moreover, this small discrepancy is anything but unheard of. Since the current U.S. economic recovery began (a period during which the TPP was being considered in Washington and all the other capitals that sought the agreement), America’s global goods exports have topped their TPP counterparts in two years, and the reverse has been seen in three years. In two other years, merchandise exports to both groups fell – both times by greater percentages for TPP exports. Moreover, the differences in none of the seven full years for which data exist is substantial.

In other words, the numbers so far support the observations that many of the biggest TPP member economies comprising the smallish non-U.S. TPP trade area (along with smaller economies like Singapore, Chile, and Peru) already have reached trade agreements with the United States – and that optimism regarding a needle-moving U.S. export boost has never been justified.

Moreover, neither the Journal editorialists or any other TPP revivalists has grappled seriously with any of the other reasons for exports skepticism. These range from the prevalence in the non-U.S. TPP economies of the kinds of non-tariff trade barriers that American trade diplomacy has never eliminated or even significantly reduced, to the related likelihood that most of the TPP provisions concerning these barriers are unenforceable.

Nor have pro-TPP voices explained why other agreement provisions – such as a yet another dispute-resolution system that would override American trade laws, plus that back door for China and other non-TPP countries – wouldn’t have supercharged U.S. imports and further swelled an already bloated, trade deficit.

The Journal‘s editorial ends with the hope that “If the 11 remaining members hold out for a U.S. return, it’s possible that rational American self-interest will prevail over protectionist bluster.” But its fact-free missive makes clear that it’s the remaining TPP supporters in the United States that urgently need to display a learning curve.

(What’s Left of) Our Economy: U.S. Trade Deficit Falls Slightly in August as Strong Exports Outweigh Record Manufacturing Shortfall

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Canada, Census Bureau, China, European Union, exports, goods trade, imports, Japan, Made in Washington trade deficit, manufacturing, Mexico, non-oil goods trade deficit, oil, recovery, services, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

In August, the combined U.S. goods and services trade deficit declined by 2.67 percent sequentially to hit $42.40 billion – its lowest monthly level since September, 2016’s $38.47 billion. The improvement came even though several typical major engines of trade deficit growth worsened.

A new record was set for the chronic and huge manufacturing trade deficit, with its $82.15 billion August total topping the previous high (last November’s $80.75 billion) by 1.73 percent. The manufacturing-heavy China goods gap, meanwhile, grew to its highest monthly level ($34.89 billion) since September, 2015 ($36.29 billion). And the pre-inflation oil trade deficit, which has decreased dramatically in recent years, staged its strongest monthly rebound (jumping by 60.59 percent) since June, 2016 (60.84 percent). Pointing to a hurricane effect: the biggest monthly drop in current dollar oil exports (11.53 percent) since August, 2015 (12.62 percent).

Boosting the August trade performance was the new all-time high hit for services exports ($66.11 billion), the best overall monthly exports figure ($195.32 billion) since December, 2014 ($197.18 billion), and the best monthly goods exports reading ($129.21 billion) since April, 2015 ($129.72 billion). America’s goods trade deficits with Mexico and South Korea, both of which have been criticized by President Trump, increased sequentially in August (by 25.49 percent and 15.20 percent). And the longstanding Japan merchandise deficit grew by 13.49 percent on month.

But merchandise trade shortfall with Trump trade target Canada plummeted by 61.43 percent month-to-month, and the goods gap with the European Union fell by 7.92 percent. The latest figures on the growth-slowing impact of the Made in Washington trade deficit show that it’s weakened slightly (from slowing the U.S. economic recovery by 17.40 percent as of the first quarter of this year to cutting inflation-adjusted growth by 17.30 percent in the second quarter). The new August trade figures indicate that it might decline modestly again once third quarter GDP and September trade data are released.

Here are selected highlights of the latest monthly (August) trade balance figures released this morning by the Census Bureau:

>America’s combined goods and services trade deficit declined by 2.67 percent on month in August to its lowest level ($42.40 billion) since September, 2016 ($38.47 billion), as a new monthly record manufacturing trade shortfall and poor China and hurricane-related oil results were more than offset by strong export performances, including a new all-time high for services exports.

>The August manufacturing trade deficit of $82.15 billion was 1.73 percent greater than the previous record total of $80.75 billion, set last November.

>August manufacturing exports grew by a solid 6.82 percent on month, to $93.51 billion. But the far larger amount of imports rose by 5.07 percent, to $175.67 billion.

>Year-to-date, the manufacturing trade deficit is running 5.56 percent ahead of last year’s record pace. Manufacturing exports for the January-August period are up 4.04 percent, and imports have increased nearly as fast – 4.72 percent.

>Fueling these manufacturing trade results in August was a 3.99 percent month-to-month widening of America’s manufacturing-heavy trade deficit with China. The $34.89 billion total was the largest monthly figure since September, 2015’s $36.29 billion.

>U.S. goods exports to China improved sequentially in August by an impressive 8.75 percent, but merchandise imports, which are much greater, increased by 5.08 percent.

>Year-to-date, the merchandise deficit with China is 6.24 percent higher than last year’s total – which was the second largest annual figure ever.

>The pre-inflation U.S. oil trade deficit, which has nosedived in recent years thanks to the energy production revolution, rose in August from $3.02 billion to $4.85 billion. That 60.59 percent monthly increase was the biggest such rise since the 60.84 percent surge registered in June, 2016.

>Pointing to the effects of this year’s violent hurricane season, oil exports in August recorded their biggest monthly decrease (11.53 percent) since August, 2015 (12.62 percent).

>On a year-to-date basis, however despite the longer-term improvement, this oil shortfall is outpacing last year’s by a stunning 36.01 percent.

>The hurricane impact on oil was also suggested by the excellent export data produced by other major sectors of the economy.

>Services set a new overseas sales record in August, and reached their second all-time monthly high in the last three months. August’s $66.11 billion bested June’s $65.90 billion by 0.33 percent.

>Total U.S. exports improved by 0.42 percent, to $195.32 billion, and thereby hit their highest level since December, 2014’s $197.18 billion.

>Goods exports rose even faster sequentially in August, by 0.44 percent to $129.21 billion. The result was their strongest month since April, 2015 ($129.72 billion).

>Having set reform of the North American Free Trade Agreement (NAFTA) as a priority, President Trump no doubt noticed that the U.S. merchandise trade deficit with Mexico surged by 25.49 percent on month in August, to $6.18 billion. U.S. goods exports to Mexico were 5.73 percent higher in August than in July, but import growth was 9.68 percent.

>The year-to-date merchandise deficit with Mexico is so far 11.72 percent higher than in the first eight months of 2016.

>America’s merchandise trade deficit with South Korea, which has just this week agreed to substantive talks on modifying its bilateral trade deal with the United States, increased by 15.20 percent sequentially in August, to $2.22 billion.

>U.S. goods exports to South Korea actually sank by 8.21 percent on month – the biggest such decrease since January’s 21.51 percent. America’s merchandise imports from South Korea fell, too, and for the second straight month – but by only 0.70 percent.

>America’s merchandise trade deficit with South Korea is down so far this year by fully 28.07 percent on a year-to-date basis. But since the bilateral trade deal went into effect, in March, 2012, it’s nearly tripled.

>The U.S. merchandise trade deficit with Japan increased notably (13.49 percent) as well on month in August, to $6.55 billion.

>America’s goods exports to the world’s third biggest single national economy decreased by 5.52 percent month-to-month, while its goods imports rose by 4.02 percent.

>Year-to-date, this merchandise deficit with Japan is running 12.54 percent ahead of last year’s level.

>Better news came in merchandise trade with America’s other NAFTA partner, Canada. The U.S. deficit – which has been volatile recently – plummeted by 61.43 percent in August, to just $410 million.

>American goods exports to Canada improved by 12.50 percent. Imports climbed, too, but by only 9.06 percent.

>Year-to-date, though, the U.S. merchandise trade shortfall with Canada is running nearly three times ahead of last year’s rate.

>Improvement in August was also seen in American merchandise trade with the European Union (EU) – the world’s largest economic unit. On a monthly basis, the U.S. deficit narrowed in August by 7.92 percent, to $12.39 billion.

>U.S. goods exports to the EU advanced by 9.08 percent on month, while imports were up only 2.52 percent.

>Year-to-date, moreover, the American merchandise deficit with the EU is running 0.72 percent behind last year’s rate.

>The latest data for the growth drag on the still weak U.S. economic recovery of rising trade deficits are only from the second quarter. But by both major measures, they show that trade’s bite into the expansion is easing, but remains deep.

>Since the recovery began, in mid-2009, to the end of the second quarter of this year, the increase in the trade deficit has reduced cumulative after-inflation output during the expansion by 9.24 percent, or $247.30 billion. That’s down from the 10.04 percent, and $255.9 billion, as of the first quarter.

>The toll on the expansion attributable to U.S. trade policy is diminishing, too, but has been much higher. This Made in Washington deficit strips out of inflation-adjusted American trade flows energy and services – two sectors where trade policy and related decisions have had only marginal effects so far. The remainder of U.S. trade flows – of goods except oil – are heavily influenced by policy.

>Since the recovery’s onset, the rise of this Made in Washington deficit has cost the recovery $462.8 billion in lost growth in absolute terms – or 17.30 percent of the cumulative total. That’s down from a growth bite of 17.40 percent worth ($443.3 billion in absolute terms) for the first quarter.

(What’s Left of) Our Economy: A Great Oil Month and Still the July Trade Deficit Worsened

Tags

Canada, China, EU, European Union, exports, high tech goods trade, imports, Made in Washington trade deficit, manufacturing, merchandise trade, NAFTA, North American Free Trade Agreement, oil, recovery, South Korea, Trade, trade deficit, trade surplus, Trump, {What's Left of) Our Economy

The combined U.S. goods and services rose sequentially in July (by just 0.33 percent) for the first time in three months even though America’s oil trade improved so much that in inflation-adjusted terms, oil exports set a new record high ($10.87 billion), and the oil trade deficit set a new record low ($6.80 billion). Moreover, in current-dollar terms, July’s $3.09 billion oil trade deficit was a 30.78 percent drop from June and the smallest since May, 2016’s $3.03 billion.

Nonetheless, not only did the monthly overall trade deficit worsen slightly; the seven-month year-to-date total ($319.10 billion) is up 9.60 percent from last year’s level, and the highest such figure since 2012 ($324.83 billion). Moreover, most of the bilateral goods shortfalls with countries that have drawn President Trump’s ire on trade rose on month, including Canada (where it more than doubled), South Korea (up 4.26 percent, partly on a 3.71 percent U.S. exports drop), and China (up 2.99 percent to a post-August, 2016 high). In addition, America’s goods sales to Canada sank on month in July by 13.85 percent – their biggest such decline since July, 2006’s 20.38 percent. The merchandise deficit with Mexico, however, fell steeply for the second straight month.

The huge, chronic manufacturing trade deficit rebounded sequentially by 4.61 percent as both exports and imports fell, but stayed 6.19 percent ahead of last year’s record pace, and although the volatile high tech goods gap tra and the volatile high tech goods trade gap dropped on month by 7.51 percent, it’s running 31.12 percent of last year’s rate and looks poised to reach an all-time annual high as well. The trade drag on the current, still sluggish American economic recovery dipped through the second quarter of this year, but has still cut its cumulative real growth by 17.31 percent, or nearly $463 billion.

Here are selected highlights of the latest monthly (July) trade balance figures released this morning by the Census Bureau:

>July saw record U.S. monthly real high oil exports ($10.87 billion), a record low real oil trade deficit ($6.80 billion), and the smallest current-dollar oil trade deficit ($3.09 billion) since last August ($3.03 billion). But none were enough to prevent the combined July goods and services trade deficit from rising slightly on month – by 0.33 percent, to $43.69 billion, from a downwardly revised $43.54 billion.

>The new inflation-adjusted oil exports record represented their second straight all-time high, beating June’s $10.35 billion mark by 4.95 percent.

>The new record low monthly after-inflation oil deficit bested the previous low of $7.56 billion, set in May, 2016, by 9.98 percent. It also represented a 14.10 percent drop from the June total.

>The July current-dollar oil deficit was 30.78 percent lower than June’s $4.47 billion level.

>July current-dollar oil exports rose 4.45 percent on month, to $10.24 billion. That was their highest level since November, 2014 ($11.14 billion).

>July current-dollar oil imports fell 6.58 percent, to $13.33 billion. That was their lowest level since last December ($13.82 billion).

>July also generally saw rising sequential trade deficits with countries identified by President Trump as difficult U.S. trade partners.

>As the second round of talks to redo the North American Free Trade Agreement (NAFTA) concluded, the U.S. merchandise trade deficit with Canada more than doubled on month, from $461 million to $1.01 billion. This represented the biggest percentage worsening of the deficit since July, 2016 – when a $25 million U.S. surplus turned into a $716 million shortfall.

>U.S. goods exports to Canada sank sequentially by 13.85 percent, to $21.88 billion – the biggest such decrease since July, 2006 (20.38 percent).

>It’s true that the July monthly surge in the merchandise trade deficit Canada followed a June plunge of 66.29 percent. But on a year-to-date basis, the American shortfall has nearly quadrupled, to $11.35 billion.

>A contrast was provided by the American trade ledger with Mexico, where the goods trade deficit fell significantly on month for the second straight month. The 17.37 percent sequential decrease drove the shortfall down to $4.92 billion – its lowest level since January’s $3.95 billion.

>U.S. goods exports to Mexico fell by 7.55 percent, to $19.74 billion, from a June level of $21.35 billion that was the second highest ever. But imports fell even faster – by 9.70 percent, to $24.66 billion. That was the biggest such drop since November, 2015’s 15.06 percent.

>All the same, the on a year-to-date basis, the U.S. merchandise trade deficit with Mexico is 11.94 percent higher than last year’s figure.

>All told, the total U.S. merchandise deficit with its NAFTA partners is 32.30 percent higher over the first seven months of this year than during the first seven months of last year.

>President Trump is also seeking to revise the 2012 U.S. bilateral trade agreement with South Korea, where the American merchandise deficit expanded by 4.26 percent on month in July, to $1.93 billion.

>U.S. goods exports to South Korea dropped by 3.71 percent sequentially, to $4.07 billion, and imports fell by 1.29 percent, to $6.00 billion.

>Year-to-date, the merchandise trade shortfall with South Korea is down by an impressive 30.31 percent so far in 2017. But on a monthly basis, it’s nearly 3.5 times greater than in March, 2012, when the trade agreement went into effect.

>Despite the rise of the yuan in recent months, the American merchandise trade deficit with China continued on its long-time upward track. In July, the shortfall set its second straight post-August, 2016 high – $33.56 billion – as it grew 2.99 percent on month.

>U.S. merchandise exports to China increased by 3.45 percent in July, to $10.05 billion. Goods imports from China rose by 3.10 percent, to $43.60 billion. That figure represented the highest such level since October, 2016’s $43.79 billion.

>Year-to-date, the U.S. merchandise deficit with China is up 6.80 percent as of July.

>More bad July trade news came from America’s commerce with the European Union (EU). The U.S. merchandise trade deficit rose by 7.90 percent on month to $13.45 billion – its highest monthly level since last November ($14.80 billion).

>U.S. goods exports to the EU tumbled by 9.80 percent, to $21.44 billion. That’s the lowest such total since January’s $21.29 billion, and the biggest decrease in these sales since July, 2016 (10.01 percent).

>America’s merchandise imports from the EU were off on month by only 3.71 percent. The resulting $34.89 billion total was the lowest since February’s $32.39 billion, and the biggest such drop since January’s 6.68 percent.

>At the same time, on a year-to-date basis, the U.S. merchandise trade deficit with the EU is only 0.95 percent higher than its comparable 2016 level.

>American manufacturing had another poor month in July as well. Its massive and chronic trade deficit rebounded sequentially by 4.61 percent to $79.64 billion.

>Manufacturing exports plummeted by 8.24 percent on month, from $95.41 billion to $87.54 billion. But imports were off only 2.54 percent, from $171.54 billion to $167.18 billion.

>Year-to-date, the manufacturing trade shortfall has widened by 6.19 percent, from $482.13 billion to $512 billion – indicating that it will set yet another annual record. (Last year’s was $853.07 billion.)

>High tech merchandise trade generated some goods news for the United States in July, at least over the short term. The deficit – which can be volatile on month – fell sequentially by 7.50 percent, from $8.82 billion to $8.16 billion.

>High tech goods exports fell by 5.13 percent, to $29.23 billion, while imports decreased by 5.66 percent, to $37.38 billion.

>Year-to-date, however, the high tech goods trade shortfall is up by 31.12 percent, and seems headed for a new annual record of its own.

>Thanks to revisions in a separate data series kept by the Census Bureau, the drag on U.S. growth during this so-far weak recovery created by the Made in Washington portion of the U.S. trade deficit dipped as of the second quarter of 2017.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the second quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.31 percent, or $462.82 billion out of $2.6744 billion in real GDP expansion.

>The previous calculable trade drag figure was $463.97 billion (17.47 percent) cut from $2.6551 trillion in cumulative real recovery era growth.

(What’s Left of) Our Economy: NAFTA’s Been a Bust for U.S. Agriculture

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Agricultural Policy Analysis Center, agriculture, Canada, Daryll E. Ray, free trade agreements, Harwood D. Schaffer, Mexico, NAFTA, North American Free Trade Agreement, Trade, Trade Deficits, trade surpluses, University of Tennessee, {What's Left of) Our Economy

Few beliefs about the North American Free Trade Agreement (NAFTA) are more solidly entrenched than the conviction that the deal has been a slam dunk winner for American farmers. Perhaps the most important believer now? President Trump. Last spring, he acknowledged that he shelved his plan to scrap the agreement after his Agriculture Secretary showed him data indicating that an American withdrawal would hammer many of the states and counties that voted him into the White House.

There’s just one major problem – the data say otherwise. Indeed, according to the U.S. International Trade Commission’s invaluable Trade Dataweb interactive database, American agriculture runs a sizable trade deficit with Canada and Mexico combined, and the gap has ballooned during the deal’s lifetime. Moreover, the statistics make clear that Washington’s trade policies overall have done nothing to bolster the U.S. farm sector’s international fortunes – at best.

The best apples-to-apples (no pun intended!) data date from 1997 – when the U.S. government began using the North American Industry Classification System (NAICS) as its main tool for slicing and dicing the American economy analytically. And although NAFTA went into effect at the beginning of 1994, the post-1997 figures represent a nearly complete data set.

In 1997, U.S. agriculture ran a trade deficit with its NAFTA partners of just under $877 million. By last year, the shortfall had swollen to nearly $6.77 billion. Mexico has been the big problem; during this period, American farm trade across the southern border deterioriated from a surplus of just under $353 million to a deficit of more $5.83 billion. The U.S. agriculture trade performance with Canada has actually improved, with its deficit shrinking from 1997 to 2016 from $1.22 billion to $940 million. Still, American agriculture is in deficit with its northern neighbor all the same.

But maybe as bad as these numbers are, American farm trade under NAFTA has fared better than American farm trade globally? Unfortunately, there’s no evidence for that proposition, either. Between 1997 and 2016, the U.S. worldwide agriculture trade balance worsened also. But it actually worsened less – with a surplus that shrank from $15.79 billion to $10.79 billion – than the balance with the NAFTA partners.

Surely, however, America’s other free trade agreements have more than compensated for the NAFTA-related losses? If only. According to the Trade Dataweb, in 1997, the United States ran a trade deficit with these countries of $1.99 billion. By 2016, this figure had soared to $8.91 billion. That’s about as bad a record as NAFTA farm trade has compiled.

Of course, American agriculture is a large sector of the economy. (Although it’s not that large: In current dollar value-added terms, it only represented 0.86 percent of the gross domestic product in 2016. Manufacturing, by contrast, comprised 11.71 percent.) Moreover, trade performance has varied greatly by specific crop or product.

For example, between 1997 and 2016, the American corn trade surplus with Mexico skyrocketed more than seven-fold, to just under $2.60 billion. The soybean surplus jumped nearly ten-fold, to $1.02 billion. And major gains have also been recorded in non-poultry meat, poultry, wheat, dried and condensed dairy products, and many other sectors. With Canada, the big U.S. agriculture winners have been mainly fruits and vegetables, as well as wines and spirits.

The big agriculture losers in Mexico trade have been – interestingly – fruits and vegetables, along with liquor and beer. With Canada, sectors with big or big and rapidly rising surpluses have been led by miscellaneous oil seeds products where the deficit has soared more than seven-fold, to $2.27 billion), followed by fish of all kinds (where the trade gap has more than tripled, to $1.34 billion), cattle, and frozen fruits, juices, and vegetables.

Overall, though, the message sent by the data could not be clearer: The idea that NAFTA has been a bonanza for U.S. agriculture needs to be put out to pasture. And far from adopting a “don’t rock the boat” posture, it’s high time for the Trump administration to start identifying fixes.

P.S. I was first alerted to these adverse trends in U.S. farm trade by the excellent research of Harwood D. Schaffer and Daryll E. Ray of the Agricultural Policy Analysis Center at the University of Tennessee.

(What’s Left of) Our Economy: A Decent Month & a Long Way to Go for US Trade

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Canada, Census Bureau, China, exports, Germany, imports, Made in Washington trade deficit, Mexico, NAFTA, North American Free Trade Agreement, recovery, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit decreased by 5.93 percent in June – a second straight sequential decline that resulted in its lowest level ($43.64 billion) since last October. Highlighting the month’s results was an all-time high services exports figure ($65.37 billion). In addition, total exports hit their highest level ($194.37 billion) since the end of 2014, and June goods exports to Mexico ($21.35 billion) were the second greatest total on record, and the merchandise deficit fell on month at its fastest pace (18.28 percent) since July, 2015.

Yet despite these milestones, the total trade deficit for the first half of the year ($276.60 billion) was the highest six-month total since the first six months of 2012. Further, goods exports to China – which accounts for roughly half of the total American merchandise trade deficit – fell in June at their fastest rate (4.74 percent) since January, 2016 (18.41 percent). And although the China-heavy manufacturing and high tech trade deficits fell on month, they are running ahead of last year’s totals as well. Indeed, the latter’s six-month total ($43.40 billion) represents an all-time high. Year-to-date merchandise shortfalls have risen – including a quadrupling of the Canada shortfall – with many of the foreign economies whose trade policies have been criticized by President Trump. (Germany and South Korea were important exceptions).

The June figures also showed a quarterly uptick in the drag on the current recovery of the Made in Washington portion of the U.S. trade deficit from an already lofty level – cutting 17.47 percent from cumulative growth since the expansion began in mid-2009, or just under $464 billion.

Here are selected highlights of the latest monthly (June) trade balance figures released yesterday morning by the Census Bureau:

>In June, the combined U.S. goods and services trade deficit dropped for its second straight month, from a downwardly revised $46.39 billion to $43.64 billion. The new total brought the shortfall to its lowest level since last October ($43.07 billion).

>Leading this progress were U.S. services exports, which rose on month by 0.94 percent to a a second straight new all-time high: $65.37 billion.

>Total exports hit something of a milestone, too, increasing by 1.23 percent sequentially to their highest level ($194.37 billion) since December, 2014 ($197.18 billion).

>Moreover, on the eve of the renegotiation of the North American Free Trade Agreement, the June data show that U.S. goods exports to NAFTA partner Mexico improved by 7.42 percent over May’s figure, to hit their second highest total ($21.35 billion) on record. (The all-time high of $22.35 billion was set in August, 2014).

>Yet in contrast to this good news, the combined American trade deficit for the first six months of the year ($276.60 billion) was the worst January-June total since 2012’s $281.46 billion – when economic growth was somewhat faster.

>Another June low-light: China, which may face punitive unilateral U.S. tariffs, bought 4.74 percent few goods from the United State than in May – the steepest such drop since January, 2016’s 18.41 percent.

>U.S. merchandise imports from China, however, rose by 1.17 percent, to $42.29 billion, and helped push the June American deficit up 3.08 percent, to $32.58 billion – the highest since last August’s $33.86 billion.

>Year-to-date, the U.S. goods deficit with China is running 6.08 percent ahead of last year’s pace, even though exports have risen nearly twice as fast (up 15.63 percent) than imports (8.39 percent).

>Although it fell on month in June (by 6.83 percent, to $8.82 billion), on a year-to-date basis, the trade deficit for high tech goods for the first half of this year set its own new record for the January-June period – $43.40 billion.

>In fact, this shortfall is up 33.37 percent from the previous January-June period.

>Between the first half of last year and the first half of this year, U.S. High tech exports inched up by only 0.36 percent, but imports have climbed 5.66 percent.

>A similar story unfolded in manufacturing. The trade gap fell 4.93 percent on a monthly basis, from $80.10 billion in May (the second highest total ever) to $76.13 billion.

>Manufacturing exports rose 2.98 percent on month, while imports dipped by 0.70 percent.

>Year-to-date, however, the manufacturing trade deficit is running 6.19 percent ahead of last year’s record pace, which resulted in an $853.07 billion 12-month total.

>Manufacturing exports are up 3.86 percent for the January-June period, but imports have grown by 4.98 percent.

>Mexico represents another example of a country criticized by President Trump whose merchandise trade surplus with the United States shrunk sequentially but has risen on a year-to-date basis.

>Thanks largely to those robust American goods export figures, the U.S. goods deficit with Mexico sank by fully 18.28 percent month-to-month – the fastest rate since July, 2015 (43.12 percent). American goods purchases from Mexico rose by only 0.52 percent over June’s levels.

>Year-to-date, however, the U.S. merchandise shortfall with Mexico is up by 13.26 percent, as goods exports have risen by 5.04 percent, but imports have grown by a faster 6.86 percent.

>An even more extreme example is provided by Canada, with which U.S. goods trade flows have been exceptionally volatile, albeit in the context of a balance that has become notably modest.

>In June, the American merchandise deficit with Canada nosedived by 54.42 percent. The decrease was only from $1.37 billion to $624 million in absolute terms, but that’s still the lowest Canadian goods surplus since June, 2016.

>On a monthly basis, U.S. goods exports to Canada improved by 1.11 percent, and imports fell by 1.77 percent.

>Between the first six months of this last year and this year, however, the U.S. goods deficit with Canada has more than quadrupled, from $2.20 billion to $10.51 billion. American merchandise exports have advanced by 3.94 percent, but imports rose by nearly twice as fast – 9.95 percent.

>Indeed, the American goods shortfall with its partners in NAFTA (the North American Free Trade Agreement), which will soon be renegotiated by the three signatories, dropped by 24 percent month-to-month in June, from $8.66 billion to $6.58 billion, on an export increase of 3.91 percent and an import dip of 0.61 percent.

>Year-to-date, however, this deficit has surged by 36.68 percent, from $34.24 billion to $46.79 billion, as U.S. goods sales to Mexico and Canada combined have improved by 4.44 percent, but purchases from the two grew by 8.36 percent.

>Yet U.S. goods trade with Germany has shown a reversal of this pattern. In June, the American merchandise deficit rose by 10.03 percent, from $4.99 billion to $5.49 billion. U.S. exports increased by a mere 0.18 percent, while imports were up by 5.36 percent.

>The American goods deficit with Germany on a year-to-date basis, however, has decreased by 5.48 percent, as U.S. merchandise sales to Germany have advanced by 7.04 percent, while purchases from Germany have slipped by 0.1 percent.

>U.S. goods trade with South Korea followed this pattern, but with bigger disparities between the on-month and on-year data. Sequentially in June, the American merchandise deficit jumped by 26.23 percent, from $1.46 billion to $1.85 billion. U.S. merchandise sales to South Korea were off 5.96 percent, but American goods imports increased by 1.95 percent.

>Yet between January-June, 2016 and January-June, 2017, this American merchandise deficit cratered by 31.91 percent, from $16.46 billion to $11.20 billion. U.S. goods exports to South Korea surged by 21.82 percent during this period, while imports slid by 2.38 percent.

>At the same time, on a monthly basis, the American merchandise trade deficit with South Korea has more than tripled (from $561.4 billion) since the bilateral trade agreement went into effect in March, 2012.

>The June trade figures make clear that the drag on American growth exerted by the Made in Washington portion of the U.S. trade deficit grew slightly between the first and second quarters of this year – from an already considerable level.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the first quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.40 percent, or $443.24 billion out of $2.5476 billion in real GDP expansion.

>As of the second quarter of 2017, this drag effect increased to 17.47 percent, or $463.97 billion out of $2.6551 billion in real GDP expansion.

(What’s Left of) Our Economy: Trump’s NAFTA Rewrite Blueprint is an Encouraging Start

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bubbles, Buy American, Canada, dispute resolution, environmental standards, GATT, General Agreement on Tariffs and Trade, government procurement, labor standards, manufacturing, Mexico, NAFTA, national treatment, non-discrimination, North American Free Trade Agreement, reciprocity, rules of origin, tariffs, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, value-added taxes, VATs, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration is out with its detailed statement of renegotiation objectives for the North American Free Trade Agreement (NAFTA), and if you’ve favored turning U.S. trade policy from an engine of debt-creation and offshoring into one of production-fueled growth and domestic job creation, you should be pretty pleased.

As critics have noted, yesterday’s statement does lack numerous important details about how the administration intends to achieve its goals, and some of these omissions (as will be explained) raise legitimate questions about the depth of the president’s commitment to these changes. But the statute requiring the release of such statements doesn’t mandate disclosure of every – or any – specific strategy for reaching these goals. Moreover, the talks haven’t even started, and these tactics naturally tend to change with circumstances. So those accusing the administration of excessive vagueness should start holding their fire.

As indicated in yesterday’s post, the most important change needed in NAFTA is the addition of teeth to the agreement’s existing rules of origin – the requirements that goods sold within the NAFTA free trade zone comprised of the United States, Mexico, and Canada be made overwhelmingly of parts, components, and materials made inside the zone.

After all, manufacturing dominates trade not only inside NAFTA, but between the NAFTA countries and the rest of the world. Without imposing teeth, non-NAFTA countries will have no meaningful incentive to invest in new NAFTA-area facilities to produce the intermediate goods that comprise the content of final products, like automobiles. And the economies, businesses, and workers in the three countries will be denied immense opportunities to boost production and employment. Indeed, this is precisely this opportunity that’s been missed under the current NAFTA.

It’s difficult to imagine these teeth taking a form other than steep tariffs on goods imports from outside NAFTA, and the Trump blueprint never mentions that “t” word. But it does contain a call to “Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.” And it specifies that these improved origin rules must “incentivize the sourcing of goods and materials from the United States and North America.” How could anyone supporting more U.S. manufacturing production and employment not be heartened?

Also impressive – as widely reported, the administration has prioritized preserving America’s ability to “enforce rigorously its trade laws, including the antidumping, countervailing duty, and safeguard laws” chiefly by eliminating the NAFTA provisions that established international tribunals as the last word in resolving trade complaints among the signatories, rather than the U.S. trade law system. The Trump administration is also seeking to reestablish America’s unfettered authority to impose “safeguard” tariffs on imports from Mexico and Canada when they begin to surge into the United States. So if you’re worried that NAFTA and other recent U.S. trade agreements have needlessly undermined American sovereignty, this blueprint is for you.

Similarly, critics have long complained about NAFTA’s overriding of the Buy America provisions of U.S. public procurement regulations aimed at maximizing the American taxpayer dollars used to purchase goods and services for government agencies. The Trump strategy laid out in the blueprint seeks to preserve these and other key domestic preference programs.

It’s true, as is being contended, that in areas ranging from promoting high labor rights and environmental standards, to dealing more effectively with the trade distortions created by state-owned enterprises (SOEs), the Trump NAFTA blueprint looks a lot like the Trans-Pacific Partnership (TPP) trade deal that the president condemned as a candidate and withdrew from on his first day in office.

It’s just as true, however, that formidable obstacles were bound to prevent effective enforcement of those proposed TPP rules. These loom as large as ever – notably, the huge numbers of U.S. government officials that would be needed to monitor the even huge-er Mexican manufacturing sector on anything close to an ongoing basis. But the final TPP text demonstrated beyond reasonable doubt that the Obama administration failed to address these concerns adequately. Maybe the Trump administration will come up with viable answers.

Finally, the Trump NAFTA blueprint contains two conceptual objectives that have never been prioritized since the current world trading system was created shortly after World War II, and that trade policy critics should be applauding vigorously. The first is the endorsement of reciprocity as a lodestar of American trade strategy. The second is an emphasis on reducing America’s mammoth trade deficits.

Although reciprocity (i.e., America opens its markets to certain trade partners only to the extent that their markets are open to U.S.-origin goods and services) seems like an uncontroversial trade goal for Washington to seek, and is often presumed to be the goal, nothing until now could be further from the truth. In particular, the foundational principles of the world trade system under the General Agreement on Tariffs and Trade (GATT), and the World Trade Organization (WTO) are national treatment and non-discrimination.

National treatment simply insists that countries deal with foreign enterprises the same way they deal with their own domestic enterprises. Non-discrimination simply mandates that countries treat imports from all trade partners’ identically. The big problems? They enable closed economies to maintain way too many trade barriers. For instance, countries that favor certain companies over others for either political reasons (as with China’s state-owned sector) or reasons of national economic strategy (as with Japan’s efforts to limit entrants into certain industries to prevent excessive domestic competition) can continue discriminating in similar ways against foreign competitors. And countries can maintain high trade barriers as long as they apply equally to all imports.

As for trade deficit reduction, it’s a great way to promote healthy, production-led American growth, rather than the kind of debt-led, bubble-ized growth that’s been engineered arguably going back to the 1990s. But here’s where the Trump blueprint can be faulted. Especially if the new NAFTA contains better rules of origin, it’s likeliest to reduce the U.S. trade deficit with non-NAFTA countries, not with the treaty signatories that the blueprint targets. And nothing would be wrong with that result at all.

Two other aspects of the NAFTA objectives deserve comment – and merit genuine concern. First, although it’s good that the administration has included on the list currency manipulation, critics are right to note that specifics are urgently needed. Their development, moreover, is important not mainly because Canada and Mexico have been important culprits (they haven’t been) but because this is a challenge that President Trump needs to meet in connection with countries that clearly have manipulated in the past and could well do so again.

Second, the Trump blueprint makes no mention of value-added taxes (VATS). Mexico’s is 16 percent, Canada’s is five percent at the federal level and eight percent at the provincial level. As with all other VATs, these levies act as barriers to imports and subsidies for exports. Candidate Trump rightly called for American countermeasures in order to level the trade playing field inside NAFTA. President Trump should take heed.   

(What’s Left of) Our Economy: It’s “Big Week” on Trade

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100-day China plan, Canada, China, environmental standards, G20, Gary Cohn, H.R. McMaster, James Mathis, labor standards, Mar-a-Lago summit, Mexico, NAFTA, North American Free Trade Agreement, North Korea, Robert Lighthizer, rules of origin, steel, Steve Mnuchin, tairffs, Trade, Trump, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

During World War II, the United States and the United Kingdom launched a massive multi-day strategic bombing campaign against Nazi Germany called “Big Week.” The stakes are considerably less apocalyptic, but yesterday began a period for U.S. trade policy that qualifies as a big week, too. Here’s why, and what to look for.

First, yesterday marked the deadline for the 100-day plan announced at the summit between President Trump and his Chinese counterpart Xi Jinping to start bringing down America’s immense trade deficit with the People’s Republic. Some near-term deals were announced in May, and the Chinese seem to be playing along, to at least some extent. But even the American offshoring lobby, which has greatly soured on China since its full-court-press lobbying campaign convinced Washington to expand U.S.-China trade exponentially, has been complaining that agreements of this scope are way too small to solve their own problems with Beijing in the Chinese market. These deals have even less potential to stop most of the damage still being inflicted on the American domestic economy from wide-ranging predatory Chinese economic practices.

The results are due to be announced this week – and may be delayed to take into account whatever can be accomplished by a new high-level economics dialogue that will hold its first session in Washington this week. Will they produce some big wins for the administration and the domestic economy? As I see it, reasons for pessimism outweigh reasons for optimism.

The former include the president’s continuing statements about the threat posed by China’s imports (in this case, of steel), and the awareness demonstrated by his campaign of how varied and unconventional (meaning they went far beyond tariffs and quotas) China’s trade and trade-related transgressions have been. Among the reasons for pessimism, though, are intra-administration divisions that entail both economic issues (with the administration’s economic populists arrayed against what’s been called the pro-free trade “Goldman Sachs” gang comprised of top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin) and security issues (pitting the populists against traditional foreign policy thinkers like national security adviser H.R. McMaster and Defense Secretary James Mattis, who would sympathize with notions like the claim that China should be courted to enlist its help in sitting on North Korea). In addition, the kinds of staffing woes still dogging the administration typically make sharp departures from a policy status quo difficult to engineer.

In fairness, Commerce Secretary Wilbur Ross, who has forthrightly described the China economic challenge, acknowledged when announcing the 100-day trade plan’s first results that three months worth of talks couldn’t possibly be a game-changer precisely because China’s mercantilism was so pervasive. But in so doing, he unintentionally made the argument – which I support for U.S. trade policy generally – for dispensing with talks altogether and capitalizing on China’s urgent need to export to the United States by addressing this issue unilaterally.

Certainly, this kind of course change would be much more consistent with the president’s numerous campaign statements emphasizing the destructive effect of Chinese predation on America’s economy and working class. It’s also the kind of strategy you’d expect from a chief executive whose non-trade agenda is almost completely stalled in Congress, who’s under intense political pressure, and who could badly use a big economic win in order to prevent major Congressional losses in the next off-year elections – whose campaign cycle will be here before he knows it.

Another big (self-imposed) administration deadline falls today. It marks the date by which the White House said it would submit its detailed plan to renegotiate NAFTA – the North American Free Trade Agreement. In May, U.S. Trade Representative Robert Lighthizer sent Congressional leaders a brief letter alluding generally to some objectives, but by tomorrow he needs to fill in critical details. Many might have been contained in a draft letter released March 30, and that plan looked pretty impressive. The big question of course is which ones will wind up surviving – and whether the administration is open to other ideas.

As I’ve written, the most important issue concerns the treatment of “rules of origin” – the provisions of NAFTA aimed at ensuring that any goods sold in the three signatory countries (the United States, Canada, and Mexico) are overwhelmingly made in some combination of those countries. The deal that’s currently in place specifies North American content levels that need to be met to qualify for duty-free treatment inside the free trade zone. But the tariff penalties for goods not meeting these standards aren’t nearly high enough to achieve the goal of increasing the entire region’s competitiveness.

The March 30 letter suggested that the administration would seek origin rules that promote U.S. production and jobs more effectively, but it didn’t say how. If much higher external tariffs aren’t proposed in the plan due today, it’s doubtful that any reforms will result in non-NAFTA countries to make more of their products in any of the countries inside the NAFTA zone. Moreover, it’s of course going to be easier for Washington to persuade Canada and Mexico to go along if it re-emphasizes what President Trump has been saying since his meeting last summer, before the election, with his Mexican counterpart: NAFTA should aim to boost the competitiveness of all three countries.

The brief May 18 Lighthizer letter also suggested obliquely the need to change NAFTA’s dispute-resolution procedures, and the March 30 draft discussed the issue at greater length. But even its recommendations to strengthen America’s authority both to respond to import surges from its NAFTA partners (called “safeguards”) and to apply its own Buy American government procurement rules to intra-NAFTA trade may not go far enough.

As I’ve explained, the fundamental problem is that the current dispute-resolution process treats the three NAFTA countries as legal equals, even though the U.S. market is nearly 90 percent of the total NAFTA market, and clearly remains the most valuable prize for all three signatories. Without closing or somehow changing acceptably, the yawning gap between the NAFTA legal regime and the economic facts on the ground, it’s hard to imagine the system serving U.S. interest on net.

At this point, you might be wondering why I haven’t mentioned NAFTA’s labor and environmental provisions. The reason? Although they’ve been major objectives of Democratic party and other left-of-center NAFTA and broader trade policy critics, as with their counterparts in the Trans-Pacific Partnership (TPP) deal, they’re largely unenforceable. As I’ve asked before, how many American bureaucrats will be needed to run around how many factories in a signatory country (in this case, Mexico) to ensure that companies aren’t abusing workers or dumping sewage into nearby streams? With more effective rules of origin, however, producers in Mexico will feel less pressure to remain competitive versus rivals in China and elsewhere in Asia by offering the worst possible working conditions and ignoring environmental considerations completely.

Finally, there’s the steel tariff issue. The administration has delayed announcing its decision to impose national security-related tariffs on U.S. steel imports, but is expected to reveal its intentions this week. For what it’s worth, the president sounds determined to approve some levies on some countries’ steel. The main question is who the main targets will be. It will also be crucial to see whether and how prominently the announcement emphasizes the need to deal decisively with the underlying problem – the ocean of subsidized steel from China that has flooded and distorted world markets in recent years.

At the same time, there’s a reason for Mr. Trump to punt – or to punt for the most part: At their summit earlier this month in Hamburg, Germany, the leaders of the world’s twenty largest economies (the “G20”) agreed to require an international commission on the subject to deliver a report by November containing “concrete policy solutions that reduce excess steel capacity.” Postponing unilateral action until this mandate is fulfilled could prove a tempting option for a president who doesn’t exactly need to come under fire from new fronts.

Moreover, if the commission’s ideas don’t pass U.S. muster, Mr. Trump would be in a much stronger position to slap the tariffs on everyone, and vow to maintain or even increase them until meaningful, concrete agreements are reached.

President Trump has been sending surprisingly (at least to me) mixed signals on trade since his Inauguration Day two-step – killing the TPP but refraining from labeling China a currency manipulator. Big Week in trade isn’t likely to clarify the picture fully, but we’re bound to know more at its end than we do here at the beginning.