Monday, October 1, 2018

I Was Wrong: US-Mexico Trade Deal Lives With Canada: USMCA Rarher Than NAFTA

At the last minute last night the US and Canada cut a deal, so now Canada is on on the deal to change NAFTA to USMCA.  I think the name change is the biggest part of it, even though Trump still claims that NAFTA was "the worst trade deal ever" and the new deal makes relatively minor changes in it, especially if one considers what would have been the case if the US had actually joined the TPP, as most of the environmental, labor, and intellectual property parts of the new deal (the environmental and labor parts largely improvements, if not too dramatic) were already agreed to by Mexico and Canada when rhey joined TPP, which they belong to along with all its other members aside from the US.

Beyond continuing NAFTA and adding the TPP parts, the main changes are in the auto industry and the dairy industry, the former mostly affecting Mexico, the latter mostly affecting Canada.  Between the restrictions on outsourcing and the $16 per hour limit on imports, there may be some shifting of auto parts production from Mexico to the US and possibly Canada as well.  This will lead to job losses in Mexico, but there may be some Mexican autoworkers who see wage boosts also.  The auto deal has little impact on Canada aside from Trump retracting his threat to impose tariffs, which was opposed by GM and Ford as well as the UAW thanks to the profound integration between the US and Canadian auto industries.

However, it must be noted that while there may be some increase in production and employment in the US auto parts sector, there is likely to be other damage to the US auto industry.  The new rules will increase costs on top of the existing steel and aluminum tariffs, which were not removed by this agreement, although both Mexico and Canada wanted them to be removed.  So  US consumers will be hurt, but the higher costs will make all auto exports from the three nations less competitive, and indeed US auto exports have been declining in recent months, something likely to accelerate after this deal really goes in.  It is quite unclear whether there will be a net gain or loss for employment in the US auto industry overall as a result of this.

Regarding dairy, well, Scott Walker gets some help in Wisconsin as indeed there will be some increased exports to Canada of dairy products, especially powdered milk and infant formula.  Apparently the opening is not as big as being advertised, and this looks to be where Trump made some give.  Probably overall US dairy industry is getting about 50% of what was asked for.  I note that dairy was never part of NAFTA, so I guess it will now officially be part of the new USMCA. 

I cannot leave this without noting that while the Canadian dairy industry has been heavily protected (and Canadian consumers might get a gain in lower dairy product prices), the US government has long subsidized the US dairy industry.  My favorite outcome of that was that the USDA long bought butter surpluses and piled them up in an underground "butter mountain" near Madison, WI.  Quite a few years ago that mountain caught fire and burned for about three months.  I think those subsidies have been reduced, but it is not the case that all the protectionism and subsidies have been on the Candian side rather than the US side.

Anyway, I prefer to admit that I am wrong upfront before somebody points it out, and I was on this one.  Lighthizer and others pulled out the deal at the last minute, even if it is not that big of a deal.

Barkley Rosser


2 comments:

Noni Mausa said...

The great Wisconsin butter fire of 1991, detailed here: https://www.nbc15.com/home/headlines/20_Years_Ago_Today_Central_Storage__Warehouse_Fire_121153104.html

A half million square feet of storage, with butter, lard, cheese, and various smoked meats — definitely worth a read! From the article:

"...it went fast ... we got the alarm .. the first units...block away ... they pulled up ... flames 300 feet high ...and part of the building had blown out already," a firefighter said back in 1991, at the scene.

"The first crew in actually got passed by cans of hams... things went shooting out around them throughout this big warehouse dock," Lt. Berggren remembers.

Berggren says the butter fueled the flames,and created challenges.

"Two - three feet of butter you're wading through... some of our lines got cut off... we couldn't find where our equipment was."

A photographer captured him in the giant mess.

"Once the walls caved in, it came out like a river," Berggren says of the butter.”

Thankfully, no one was seriously injured.

Anonymous said...

Aside: I completely sympathize with you about the terrible affirmation that is coming of a new justice. The question I asked which annoyed you would have helped me had you answered, but the choice of justice is terrible no matter what we actually know as yet about his attitudes on the issue you raised.

What a sad time.