A New NAFTA and the Art of the Deal

President Donald Trump announced a tentative trade agreement with Mexico Monday, calling it “one of the largest trade deals ever made” and “much better” than the North American Free Trade Agreement (NAFTA). Speaking from the Oval Office, Trump was joined by Mexican President Enrique Peña Nieto via conference call. Nieto also chimed in that it was an “incredible deal for both parties.” Is it?

As always with trade, the answer is “yes and no.” There are good aspects and bad ones.

Points reached in the agreement include changes to automobile manufacturing. Each car produced would have to be 75% sourced in North America, up from 62.5%, to avoid tariffs when being transported across national borders. Also, 40-45% of each car produced must be manufactured by workers making $16 per hour or more to avoid tariffs. That helps American manufacturers, but it will raise prices for consumers. Additional updates to rules on intellectual property and labor are also part of the agreement.

The deal still must be approved by Congress and the Mexican government. Trump is eager to make this happen before the midterms, and Peña Nieto is likewise hoping to have his government approve the measure before he leaves office on Dec. 1. At this point, there don’t appear to be any insurmountable political hurdles to prevent the trade agreement from becoming a reality, but never underestimate the machinations of American Democrats or Mexican Socialists like incoming President-elect Andrés Manuel López Obrador. And in any case, time constraints likely mean it isn’t going to happen this year.

It’s important to note that this is a strictly bilateral trade agreement between the U.S. and Mexico. What will become of Canada, the third member of NAFTA, is yet to be determined, though clearly Trump means to use this as leverage with our northern neighbors.

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