(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.

Making News: On with Thom Hartmann Tonight re NAFTA – & Maybe Bannon!

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Making News, NAFTA, North American Free Trade Agreement, RT America, Stephen K. Bannon, The Big Picture with Thom Hartmann, Trade, Trump

I’m pleased to announce that my appearance on “The Big Picture with Thom Hartmann,” which was cancelled earlier this week due to the flood of political news, has been rescheduled.  And it’s tonight – at 7:15 PM EST.

It’s the same subject – the opening round of talks to renegotiate the North American Free Trade Agreement (NAFTA) – with maybe a little Steve Bannon analysis thrown in!

If you don’t get RT America on your TV, you can watch live at this link.  As usual, for those who can’t tune in, I’ll be posting a link to the video as soon as one’s available.

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

Making News: Talking NAFTA on CNBC This Afternoon – & More!

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China, CNBC, John Batchelor, Making News, NAFTA, North American Free Trade Agreement, Power Lunch, RT America, The Big Picture with Thom Hartmann, The John Batchelor Show, Thom Hartmann, Trade, Trump

I’m pleased to announce a bevy of upcoming scheduled media appearances today.

First, negotiations to revamp the North American Free Trade Agreement (NAFTA) begin today, and at 2 PM EST, I’ll be appearing on CNBC’s “Power Lunch” program to discuss President Trump plans to modify the deal. If you lack access to the network on your TV, you can watch live at CNBC.com.

Second, I’ll be interviewed on the same subject at 7 PM EST on “The Big Picture with Thom Hartmann,” on RT America. Here’s the live on-line viewing option.

And finally (so far!), the topic will turn to China trade tonight when I talk about the president’s new moves to counter Beijing’s predatory practices on the nationally syndicated “John Batchelor Show.”  The segment is slated to begin at 10:15 PM EST, and you can listen live on line here.

As always, for those who can’t tune in to these programs in real time, I’ll be posting links to the videos and the podcast as soon as they’re available. And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(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.   

Making News: Radio Interview This AM = & More!

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Akron, China, Forbes.com, Gordon Chang, Lifezette.com, Making News, NAFTA, North American Free Trade Agreement, Plastics News, Ray Horner Morning Show, Trade, Trump, WAKR-AM

I’m pleased to announce that I’m scheduled to appear this morning at 9:35 on WAKR-AM’s(Akron, Ohio) Ray Horner Morning Show to talk about the major decisions on trade policy that have started to come from the Trump administration this week.  Click here to listen live.  WAKR doesn’t post many podcasts, but if it does in this case, I’ll put up the link as soon as it’s available.

In addition, I was quoted yesterday in Lifezette.com‘s analysis of the president’s new blueprint for renegotiating the North American Free Trade Agreement (NAFTA).  Here’s the link.

On Sunday, China specialist and John Batchelor Show co-host Gordon Chang featured my views on the final results of President Trump’s 100-day plan to reduce the U.S. trade deficit with China.  The announcement could come any day this week, so click here to read his new Forbes.com post on the issue.

Finally, last Friday, Plastics News spotlighted my analyses of the latest U.S. manufacturing jobs and real wages figures – which didn’t exactly knock it out of the park. Here’s the link.

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

(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.

(What’s Left of) Our Economy: Will Trump Take Ford’s New China Trade Hint?

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(What's Left of) Our Economy Trump, automotive, border adjustment tax, China, Ford Motor Company, imports, Jobs, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, offshoring, tariffs, trade agreements, trade balances, Trade Deficits

President Trump and his administration have certainly been active on the trade front in their first months in office, both in word and deed. The question remains whether they’ve been effective, and a breaking news story has just added powerfully to the doubters’ case.

The news has to do with Ford Motor Company’s announcement that it will scrap plans to relocate its remaining small car production from the United States to Mexico and supply the American market from an existing plant in Hermosillo, and instead import the vehicles from a retooled factory in China. The initial Ford production decision came under fire from Mr. Trump, and the company’s reaction – a rejiggered Mexico plan – looked chancy for two main reasons:

First, the president had declared his intention to renegotiate the North American Free Trade Agreement (NAFTA) in large measure to stop such production offshoring. Second, the staunchly pro-trade Republican leaders of the GOP-controlled House of Representatives had been pushing a border adjustment tax proposal that would have imposed new costs on imports from anywhere.

Ford has now underscored why both opponents and supporters of a transformed, less import-friendly U.S. trade policy have been right in one of their major criticisms of Mr. Trump’s emerging strategy: A tight focus on bilateral trade issues and balances overlooks the ability of multinational companies to shift export-oriented production in order to evade country-specific tariffs or other trade curbs.

Not that business’ ability to hopscotch is unlimited. The massive level of sunk corporate costs in export-focused production in China, for example, won’t always be easy to walk away from. And not all countries offer comparable advantages to manufacturers. So given, for example, that China accounts for more than 43 percent of the American merchandise trade deficit, or that Mexico’s geography makes it such an unusually attractive base for selling to U.S. customers, focusing on individual-country or regional priorities often makes good sense.

It’s also legitimate in principle to base trade preferences on non-economic aims, like national security (e.g., rewarding allies or strengthening third world economies against the appeal of terrorism) – though Mr. Trump has expressed strong skepticism for this approach, notably in his Inaugural Address. And of course, prioritization is often the key to any successful public policy.

But what’s especially strange about the Trump trade strategy so far is the president’s indifference – at best – to the border adjustment tax idea. On top of undercutting corporate tariff arbitrage strategies by levying a tax on all imports (and encouraging exports), the measure would also bring in revenue needed to finance crucial domestic needs like infrastructure and healthcare reform without completely busting the federal budget. And its passage would by no means preclude addressing special trade priorities of all kinds with additional restrictions.

Ford’s new production announcement is just the latest in a series of comments from Corporate America that bear out one of President Trump’s central insights: that trade policy changes can decisively influence corporate sourcing decisions to America’s benefit. Now, however, he needs to recognize that his essential goal of using trade restrictions to lure valuable manufacturing production and jobs back to the United States requires policies with global scope. The half- (at best) measures he’s favored so far are just too easily gamed.

(What’s Left of) Our Economy: Why Ag Fears Mustn’t Drive Trump’s NAFTA Revamp

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agriculture, automotive, exports, imports, Jacob Bunge, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, offshoring, The Wall Street Journal, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

You have to hand it to the American agriculture industry: It has great lobbyists and public relations flacks. Just look at the job they’ve done convincing the Trump administration to pay special attention to the farm sector’s concerns when renegotiating the North American Free Trade Agreement (NAFTA) with Mexico and Canada. And as made clear by The Wall Street Journal today, they’re keeping the pressure on in an effort to convince the president that the United States doesn’t hold such overwhelming leverage in these talks with Mexico in particular.

No one can blame ag from doing its job. But maybe the press could do a somewhat better job of providing valuable context, as the Journal article today simply didn’t?

It’s indeed noteworthy, as The Journal‘s Jacob Bunge reported, that American farm exports to Mexico have fallen so far this year, especially given that Mexico is the third largest foreign market for these goods. Moreover, it does look like the drop stems at least partly from Mexico’s search for alternatives to U.S. suppliers in order to create NAFTA revamp bargaining chips.

But a broader examination of bilateral trade flows shows that, however important, agriculture doesn’t deserve pride of place in America’s trade negotiations – with Mexico or any other countries. First of all, according to the U.S. Bureau of Economic Analysis, last year, agriculture (along with forestry, fishing, and hunting) comprised 0.9 percent of the American economy on a value-added basis. Manufacturing represented 11.7 percent.

Last year, moreover, manufactures exports (of $1.05127 trillion) topped agricultural exports ($134.88 billion) by a factor of nearly eight. It’s true that agriculture ran a trade surplus and manufacturing an immense deficit. But the former – about $20 billion – was hardly an economic game-changer, and that was especially so considering the nearly $862 billion scale of the latter.

U.S.-Mexico trade tells a similar story: According to The Journal, 2016 saw America sell $18 billion worth of agricultural products to Mexico. Manufacturing exports were about eight times as great: just over $143 billion.

But there are some big problems with these manufacturing exports. For example, they’re much more than offset by U.S. manufactures imports from Mexico. In fact, since 2009 (the year the current recovery began), this bilateral trade deficit has risen more than twice as fast (by 125 percent) than that with China (52.56 percent).

Moreover, Trump is right about much of this imbalance resulting from NAFTA-induced American production offshoring to Mexico that aims to sell back into the United States. That’s had much to do with the 1990-2013 drop in the United States’ share of North American light vehicle production from 78 to 64 percent, and the rise in Mexico’s share from six to 19 percent. That’s also had much to do with the more than tripling of the U.S. bilateral trade deficit in autos and light trucks since NAFTA’s signing.

In fact, in the first eleven months of 2016, Mexico exported nearly 80 percent of the 3.22 million autos it produced, and fully 77 percent of them were sent north of the border.

As a result, auto industry leaders have plainly stated that without the unfettered access NAFTA provides to the American market, and without the incentives to produce in super-cheap and largely unregulated Mexico created by the treaty, most of their auto investment in Mexico would lose its raison d’etre.

No one is calling for neglecting America’s farm sector during the NAFTA renegotiation. But the outsized role played by manufacturing, and manufacturing trade deficits in regional trade, along with manufacturing’s historic role as the United States’ productivity growth and innovation leader, couldn’t make clearer that letting ag export fears dominate this economic diplomacy would be a classic case of letting the tail wag the dog.

(What’s Left of) Our Economy: Which Democrats are Serious and Un-Serious About Trade Overhaul?

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AFL-CIO, Bernie Sanders, Canada, Charles Schumer, currency manipulation, Debbie Dingell, Democrats, dispute resolution, Elizabeth Warren, environmental standards, labor standards, Mexico, NAFTA, North American Free Trade Agreement, Politico, Richard Neal, Robert Lighthizer, Rosa deLauro, rules of origin, Thea Lee, Trade, Trump, U.S. Trade Representative, unions, Wilbur Ross, William Pascrell, {What's Left of) Our Economy

Usually, paying attention to instances of politicians and other public figures getting up on their soapboxes is a waste of time. Yesterday served up an exception: a press conference held by House Democrats in reaction to President Trump’s official decision to open talks to renegotiate the North American Free Trade Agreement (NAFTA). The statements recorded in this Politico account offer some evidence as to which leaders on America’s Left are willing to work with the administration on trade policies that can help the working class voters Democrats still profess to champion, and those who will remain content to sit on the sidelines and take partisan potshots.

Reportedly, all of the House members who spoke at the event “said…they feared Trump would make only modest changes to NAFTA after blasting it as an economic disaster throughout last year’s presidential campaign.” The basis for these worries? The letter sent yesterday by new U.S. Trade Representative Robert Lighthizer to Congressional leaders announcing the administration’s intention to open NAFTA talks with the two other signatories, Canada and Mexico. According to these House Democrats and some other trade critics, the document apparently was “short on details,” which many claimed indicated Trump’s intention simply to “tweak” rather than comprehensively overhaul the agreement.

All else equal, wondering about the president’s real intentions is anything but unreasonable. His personality, after all, is mercurial, and one of his major trade initiatives to date – the negotiations begun with Beijing following February’s summit with Chinese leader XiJinping – has legitimately disappointed advocates of the major course change he pledged during the campaign. (The other major trade initiative, scrapping the Trans-Pacific Partnership trade agreement, kept a leading campaign promise to the letter.) Moreover, the Lighthizer letter is indeed short on specifics.

But none of the participants in the press conference seems to have noticed that in previous statements –including reportedly to leading Democratic lawmakers, top Trump officials have emphasized the need for dramatic NAFTA changes.

For example, Commerce Secretary Wilbur Ross has described as high NAFTA-related priorities greatly tightening the pact’s rules of origin in order to incentivize more non-NAFTA manufacturing investment inside the free trade zone, and restructuring a dispute-resolution system that gives each signatory an equal vote even though the United States represents more than 85 percent of North America’s total economic output. Reinforcing this point was the Lighthizer letter’s contention that “establishing effective implementation and aggressive enforcement of the commitments made by our trading partners under our trade agreements is vital to the success of these agreements and should be improved in the context of NAFTA.”

Meanwhile, Lighthizer reportedly has told Senators that the administration is thinking of adding to NAFTA rules that would prohibit currency manipulation – a move that would set a valuable precedent for future trade deals. In addition, his letter mentioned the need to improve NAFTA’s labor and environmental protections. In my view, they’re largely unenforceable. But they’ve been a prime focus of Democratic Party trade policy positions for decades.

So given that background, it seems fair at this point to finger Connecticut’s Rosa deLauro, New Jersey’s Bill Pascrell, and Massachusetts’ Richard Neal as grandstanders. The former stressed the “tweaking” allegation. The latter two charged that “It was clear from the start that the administration was only interested in working with the Congressional Republican leadership in drafting this notice [the Lighthizer letter].”

I’d also include in this group several key Senate Democrats, including Leader Charles Schumer of New York, former presidential candidate Bernie Sanders of New York, and Elizabeth Warren of Massachusetts. They voted against Lighthizer’s confirmation despite his decades-long record of fighting predatory foreign trade practices both as Deputy U.S. Trade Representative during the Reagan administration, and as a trade lawyer representing domestic American producers.

More temperate in their judgments were Michigan’s Debbie Dingell, and the AFL-CIO’s Thea Lee. The former stated that she was “investing the time to understand where the consensus is.” The latter said, “We enter every negotiation in a good faith state of mind and we expect a lot from our government. Certainly candidate Trump made a lot of promises about fixing flawed trade agreements and looking out for American workers and good jobs, so we will hold him and his administration to that promise.”

I can’t think of a more reasonable position for politicians and other supporters of a movement that still styles itself as the “party of the common man [and woman].”