Trump is right to criticize NAFTA—but he’s wrong about why it’s bad for America

Donald Trump’s promise to renegotiate or tear-up the 1994 North American Free Trade Agreement was a major reason why he won the support of working class voters in the Midwestern states that were crucial to his election. It’s also a trap.

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As US president-elect, Trump quickly scored some points with his Rust Belt constituency after claiming to get the Carrier and Ford corporations to reduce the number of jobs they are sending to Mexico. He also clearly exaggerated the effect of his personal persuasiveness: Carrier was moved by a $7 million tax break from the state of Indiana and Ford might well have made its decision before Trump intervened. In any event, as the Wall Street Journal reports, other companies, such as Rexnord, Caterpillar, and Nucor continue to send jobs south of the border. Renegotiating NAFTA is therefore the first real test of Trump’s pledge to create good new jobs by negotiating better trade deals.

Will he deliver on this pledge? No. But the reason is not, as the conventional economic wisdom has it, because outsourcing work to low-wage countries is the inevitable result of immutable global forces that no president can reverse. The problem for American workers is not international trade, per se. America has been a trading nation since its beginning. The problem is, rather, the radical new rules for trade imposed by NAFTA—and copied in the myriad trade deals signed by the US ever since—that shifted the benefits of expanding trade to investors and the costs to workers.

A dramatic realignment of economic class interests

Trump is right that the 1994 agreement with Mexico and Canada displaced US jobs—some 850,000, most of which were in manufacturing. But he is wrong in his claim that American workers lost out to Mexican workers because US negotiators were outsmarted. The interests of workers were never a priority for either American or Mexican negotiators.

NAFTA was the first important trade agreement that reflected the dramatic realignment of economic class interests across national borders. The globalization of corporate finance, production, and marketing has disconnected the interests of investors and workers throughout the world. As Jorge Castañeda, who later became Mexico’s foreign minister, observed in his book The Mexican Shock, NAFTA was not a deal between competing national interests. It was “an agreement for the rich and powerful in the United States, Mexico and Canada, an agreement effectively excluding ordinary people in all three societies.”

If NAFTA had been just a “free-trade” accord, it could have been written on a few pages. Instead, it was more than a thousand pages of complex rules that gave corporate investors—who dominated all sides of the bargaining table—privileged access to the US market for goods produced in Mexico where wages are low and regulations weak. The agreement also contained an array of extraordinary protections for investors, including secret dispute settlement panels with the power to override national labor and environmental regulations deemed to threaten profits. US employers’ ability to shift, and threaten to shift, production to Mexico severely undercut the bargaining power of their American workers.

As a result of NAFTA, Mexican workers gained industrial jobs. In the auto industry, for example, employment in Mexico grew 620,000 between 1999 and 2016, while the US lost 360,000 jobs. Yet Mexican wages and working conditions remained suppressed. Although they produce for the same market, workers in the Mexican auto parts industry make 12% of the wages of US auto parts workers. Mexico’s labor costs, meanwhile, are now 40% below China’s, and its 2014 poverty rate was higher than it was when NAFTA began 20 years earlier. The massive surge in illegal immigration from Mexico to the US in the two decades after NAFTA was evidence of the failure of NAFTA to bring its promised prosperity and opportunity to the majority of that country’s workers.

In both the US and Mexico, the gap between worker productivity and worker compensation widened relentlessly. Mexican manufacturing workers productivity rose 80% between 1994 and 2011, while their real wages actually fell about 20%—pulling down US wages, which rose less than half of the gain in worker productivity. The result was an upward redistribution of income from labor to capital in both countries.

Trade agreements are a major cause of this widening gap, although other factors, such as the decline of labor unions and labor market de-regulation, have also played a role. But the currently fashionable idea that US workers are losing ground because they are not educating themselves to keep up with new technology is wrong. This idea is inconsistent with the continuous rise in their productivity, as well as the stagnation in the real wages of young college graduates, whose real wages have not risen since 2000.

What Trump should do—but won’t

For Trump to live up to his promise, he would need to negotiate a rebalanced agreement—one with enforceable labor standards and protections equaling those given to investors—so that workers’ wages on both sides of the border could once again rise with their productivity.

Donald Trump will not do this. He and the Republican-led US Congress are dedicated to the de-regulation, not re-regulation, of labor markets. Trump’s economic advisers come from the same pool of financial interests that negotiated NAFTA for their own benefit 25 years ago. The current Mexican policy elite—whose own increased wealth also depends on low-wage labor—shares their perspective.

Neither will Trump tear up NAFTA. NAFTA was a flawed agreement, but after two decades there are simply too many cross-border business relationships at risk—especially in border states important to Republicans—for him to simply dissolve it. Moreover, pulling out of the agreement would end the cooperation Trump needs from Mexico to police the border, wall or no wall.

As he has on other issues, Trump has trapped himself with his own bombast. His administration’s chaos and confusion is already eroding his popular support. It will likely erode further as it becomes clear that his tax, budget, and health care proposals will redistribute income further up the economic ladder. Thus, it will become even more important for him to keep the loyalty of the Midwestern working class, for whom NAFTA became a major symbol for their populist rage. So, Trump will be forced to re-negotiate NAFTA in a way that appears to change the agreement without actually changing the way it undercuts his supporters’ wages and living standards.

This would be a delicate political task for any negotiator. But after over a year of relentless criticism of NAFTA, Trump appears to have no serious idea of how he would change it.

Mexico’s bargaining chip

Although unclear about his bargaining goals, Trump is clear about his bargaining strategy: bluster, insults, and threats. His style already scuttled a scheduled January meeting with Mexican president Peña Nieto, who would not—as no Mexican leader could—agree to discuss his country paying for Trump’s Wall.

On paper, Mexico’s bargaining position is weak. Because of NAFTA, 80% of its exports now go to the US. Pre-NAFTA Mexico was self-sufficient in essential staples like corn and gasoline; today it has become increasingly dependent on US suppliers. Moreover, time should be on Trump’s side. Uncertainty among investors about Mexico’s future access to the US market (link in Spanish) has already slowed growth to a crawl. A falling peso has raised the price of gasoline, setting off large anti-government demonstrations around the country. President Enrique Peña Nieto’s popularity has fallen to 12% and he has less than two years left in his term.

But Peña Nieto’s weakness also gives him a bargaining chip. The political assumption of the original NAFTA was that closer integration with the US would, as one American negotiator blurted out to me in 1993, would “keep the Mexican Left out of power.”

Today, Trump’s rhetoric has inflamed a Mexican electorate already alienated by increasing inequality, corruption, and the spread of criminal violence. The left nationalist, Manuel Lopez Obrador, a fierce critic of US influence in Mexico, is ahead in the polls for Mexico’s 2018 presidential election. Forcing onerous concessions on Mexico at this point could ignite a political explosion and result in a Mexican government that would be a nightmare for the business interests represented both Trump’s and Pena Nieto’s negotiators.

The erratic and belligerent Trump might, of course, drive US-Mexican relations over a cliff. But he prides himself as a deal-maker, not a deal-breaker. So the most likely outcome is a modestly revised NAFTA that: 1) Trump can boast fulfills his pledge 2) Peña Nieto can use to claim that he stood up to the bullying gringo 3) doesn’t threaten the low-wage strategy for both countries that NAFTA represents.

Revisions might include weakening NAFTA’s dispute settlement courts, raising the minimum required North American content for duty-free goods, and reducing the obstacles to cross-border trade for small businesses on both sides of the border.

Changes like this could marginally improve the agreement, and would be acceptable to the Canadians, who have been told by Trump that he is not going after them. But from the point of view of workers in the American industrial states who voted for Trump, the new NAFTA is likely to be little different from of the old one. The low-wage strategy underlying NAFTA that keeps their jobs drifting south and US and Mexican workers’ pay below their productivity will continue.

But you can bet that Trump will assure them that it is the greatest trade deal the world has ever seen.

By Jeff Faux- Founder of the Economic Policy Institute

Trump’s Tough Talk on Trade Deals is Absent from New Executive Orders

Donald Trump, on Friday, signed a pair of Executive Orders aimed at addressing what he calls bad trade deals for the United States. Is Trump really willing to play hardball with our trading partners?Well, to discuss this, we are joined by Justin Akers Chacón. He is an individual activist, writer and an educator who lived in the San Diego-Tijuana border region. He is also co-author of the book titled, “No One is Illegal,” along with Mike Davis, and he’s a professor of Chicano history at San Diego City College.He joins us today from the west coast. Justin, thank you so much for being here.

JUSTIN AKERS CHACÓN: Thanks for having me.

KIM BROWN: These Executive Orders were a little vague, and Trump has tasked the Commerce Department with reporting within 90 days about what factors into our trade deficit. Justin, what were your thoughts about these Executive Orders, when you read them, and is this an appropriate thing for the Commerce Department to be doing?

JUSTIN AKERS CHACÓN: Well, what struck me was how different in content they were from the rhetoric that Trump used during the campaign. And I think this reflects the fact that, at least pertaining to trade with Mexico, that the U.S. has a lot of vested interests -– I should say corporate interests have a lot of vested interests in Mexico -– and I think, when Donald Trump talked tough on trade with Mexico, he was really coming from a place where he didn’t exactly know to what extent U.S. interests had invested there.And I think he had to recalibrate his approach there, because in fact, trade with Mexico is very lucrative for U.S. corporations. I think he got the message that messing with that was not the right idea.

KIM BROWN: Get into that a little bit more, Justin. Because Donald Trump, while he was on the campaign trail, railed heavily against these international trade deals. He vowed to pull the United States out of the Transpacific Partnership — which he has done — and he says that NAFTA was a bad trade deal for the United States.So, talk to us about the history of this trade deal, the North Atlantic Free Trade Agreement, signed in the ’90s during the Clinton administration between the United States, Mexico and Canada. I mean, has this trade deal been bad for the United States? Has it been bad for U.S. corporate interests, and bad for American workers, as well?

JUSTIN AKERS CHACÓN: Well, the North American Free Trade Agreement really began with a drive from U.S. corporations to open up Mexico’s economy. Mexico traditionally had a closed economy. Really stemming from its… going back to its revolution, that began in 1910. And the conclusion of the revolution was with a constitution that contained various clauses that were designed to protect Mexico’s economy from foreign control.Essentially, in the 1980s, much of those constitutional protections that were designed to protect the economy from foreign domination, were lifted, were written out of the constitution, and NAFTA was written into the economy.So, what that basically means, is NAFTA was a series of requirements -– well, I should say prior to NAFTA, there were a series of requirements that were designed to open Mexico’s economy. This began, really, in the early 1980s when Mexico began to experience a significant debt crisis. And much of that debt was owned by the United States.And so, when Mexico began to experience this, the United States, primarily through the institution of the International Monetary Fund, began to issue what were called, Structural Adjustment Programs. Which were, in exchange for loans to deal with their debt, they were required to basically change the rules within their economy.And so, there were over nine Structural Adjustment Programs that were implemented through the 1980s that, in exchange for debt servicing, required Mexico to remove tariffs. Required Mexico to basically end state ownership of much of the economic infrastructure — began to reduce, or remove currency controls.And basically we saw the opening up of Mexico’s economy, completed in 1994 with the signing of the North American Free Trade Agreement, which basically was the consolidation of all of these Structural Adjustment Programs into a treaty.KIM BROWN: When we look at the after-effects of the North American Free Trade Agreement, some 20-plus years after it’s signing, who made out the best here?Did the United States make out well? How did Mexico fare? What about Canada? And, again, was this trade deal more beneficial to U.S. corporations than it was to U.S. workers? Because many point to the signing of this trade agreement as sort of the beginning of the end for the manufacturing economy in the United States.

JUSTIN AKERS CHACÓN: Well, yes. The people who won out in NAFTA were U.S. corporations — by a large margin. The transformation of the Mexican economy, basically allowed U.S. corporations, U.S. capital, U.S. investors, et cetera, to operate freely in Mexico. And so, we’ve seen over the last few decades, we’ve seen a fundamental transformation of the Mexican economy. About 80% of Mexico’s financial sector is now owned and controlled by U.S.-based banking institutions.About 60% of its manufacturing is now controlled by U.S. corporations. There are over 2,800 maquiladoras, which are primarily U.S.-owned assembly plants in Mexico. We go industry, by industry — automotive, electronics — much of the infrastructure in Mexico is actually owned by U.S. corporations.And so, we’ve seen a tremendous amount of investment coming in, and that has led to a very profitable arrangement for U.S. corporations. So, as of 2016 for instance, U.S. corporations within Mexico, employed about 1.3 million people, and generated about $250 billion in sales revenue. Much of what they produce came back to the United States.So, this is what is interesting about our trade deficit, is that there is a trade deficit of about $60 billion between the United States and Mexico. But much of the trade that’s coming from Mexico into the United States, is coming from U.S.-based corporations, or U.S.-based facilities operating in Mexico, and furthermore, about half of what they use to produce, their products come from the United States.So, we’re not really talking about a deficit between the U.S. and Mexican-based corporations, or Mexican-based enterprises, we’re really talking about a deficit (laughs) that’s really reflecting of the fact that U.S. companies in Mexico are doing more business. And much of that is coming back into the United States.So, this is one of the contradictions of Trump’s claim that, you know, that we have too big of a deficit with Mexico.Furthermore, the United States is now entering into the once-protected oil industry of Mexico. And so, much more capital is being invested there, with the intention of producing more oil for export.

KIM BROWN: Justin, when we talk about what Donald Trump is proposing, in terms of amending American trade policy, I mean, he has proposed a number of things, including import tariffs on Mexican goods into the United States. He’s also going to be hosting the Chinese Premier, Xi Jinping, later this week, and there’s a lot of talk there.He has had many strong words for China, he has criticized China for allegedly devaluing their currency, and how much of American debt that China actually holds. So, have any of his sort of, loose proposals for addressing America’s trade issues, does any of it sound appealing to the American worker in your opinion?

JUSTIN AKERS CHACÓN: Well, I don’t think Donald Trump has the American worker in mind when he’s talking about getting tough on trade, or deficits, or whatever. I think he’s really posturing, in order to represent the interests of the investor class in the United States. And I think that’s one of the reasons why NAFTA has sort of fallen off of his radar, in terms of being a central problem for U.S. trade, and that’s perhaps why he didn’t mention it specifically in his Executive Orders.But really, I think what’s happening here, is an attempt to try to increase U.S. control, or U.S. access in places like Mexico by posturing, by threatening to impose taxes, or threatening to take some sort of action, based on the false idea that the United States is losing out from these measures.So, for instance, if we look at Mexico, and we try to understand what is the root of the problem here, where is the trade deficit coming from, or how is it being produced? It really… there’s no discussion of what’s actually happening in the Mexican economy, as a result of NAFTA.So, for instance, prior to 1994, prior to NAFTA being fully promulgated, like I had mentioned before, there were over 700 economic activities that were closed to U.S. investors, or at least required restrictions on any kind of investment activity. While, since 1994, 669 economic activities within Mexico, we’ve seen all restrictions lifted. We’ve seen all restrictions lifted. And so, there has been a significant investment within Mexico of U.S. capital. And for instance, Walmart now is the largest retailer in Mexico. It’s a significant… banking institution, as well. It’s actually expanded its range of economic activities.Exxon Mobil, and Chevron, now operate within the Gulf of Mexico. Now, as of last year, have moved into Mexico’s once very, very protected and cherished oil industry, and it’s not a coincidence that the Secretary of State is himself a former CEO of Exxon Mobil, Rex Tillerson. So, I think part of the posturing here, part of the threatening behavior on behalf of Trump, is not so much to actually address the tremendous economic displacement that’s happened in places like Mexico, as a result of this massive influx of capital, and the export of profits, which has displaced, by the way over, 7 million people in Mexico since 1994.Nor is it to address the export of jobs, or the role of U.S. corporations to move operations into Mexico, to take advantage of cheap labour to make more profit off of the lower labour costs in Mexico -– it’s not to address either one of those issues. It’s to figure out how to create more opportunities for corporations to operate in Mexico, and to extract more wealth from that process.KIM BROWN: Indeed. Well, we’ll certainly be keeping an eye on what Donald Trump does, because obviously what he does, and what he says, don’t always match up.Today we have been speaking with Justin Akers Chacón. He is an activist, writer and an educator, who lives in the San Diego-Tijuana border region, and he’s also the author of a recent book titled, “No One is Illegal”, and he teaches Chicano history at San Diego City College.Justin, we appreciate you joining us today.

TPP reincarnation

President Trump may have withdrawn from the TransPacific Partnership, but his Administration plans to use TPP as the “starting point” for a revamped North American Free Trade Agreement and new bilateral deals, according to Commerce Secretary Wilbur Ross (WTD, 3/31/17).

no-tpp-2TPP made some improvements over previous US trade deals, the secretary said in an interview with Bloomberg Television Friday. “We’re not going to throw the baby out with the bath water.”

NAFTA partners Canada and Mexico made concessions in the TPP that should be the starting point from which to build a new NAFTA – which will then be the model that can be used going forward for new US trade agreements, Mr. Ross stated.

The Commerce Secretary described himself as “anxious” to get started on NAFTA renegotiations, but said the timing is up to Congress. It would be better to conclude the negotiations well in advance of next year’s Presidential elections in Mexico, he suggested.

Asked whether the Trump Administration plans to abide by World Trade Organization rules, Mr. Ross expressed some concern about the “mindset” at the global trade body. The WTO treats antidumping and countervailing duties and domestic trade remedies in general as protectionist measures. It fails to acknowledge that trade remedy cases are on the rise because more countries are violating the rules, he said.

In a separate interview on Fox Sunday Morning Futures, Mr. Ross said he believes the US trade deficit is a “bad thing” because it means jobs are being created in other countries and not in the United States. Commerce has been charged by President Trump to compile a report on all trade barriers that are contributing to the US trade deficit.

From Bilaterals.org

After Calling Nafta ‘Worst Trade Deal,’ Trump Appears to Soften Stance

WASHINGTON — President Trump, who has called the North American Free Trade Agreement “the worst trade deal” ever signed by the United States, appears to have backed off his threat to abandon the deal and is instead proposing keeping major planks in place when he begins renegotiating it later this year.

31NAFTA-01-master768But Mr. Trump, eager to showcase his tough stance against unfair trade practices, plans to sign two executive orders on Friday that will lay the groundwork for new policies and stricter enforcement of trade laws. The president will order a 90-day study of abusive trade practices that contribute to the United States’ trade deficit. The Commerce Department and the United States trade representative will do a country-by-country, product-by-product accounting of the reasons for the imbalance. A second directive is aimed at increasing the collection of duties from countries whose companies American officials believe are selling products in the United States below their cost of production.

Neither measure will have an immediate impact on trade policy or enforcement, but each could eventually lead to aggressive new measures. Both are aimed at showcasing Mr. Trump’s intent to fulfill his promises on trade. Mr. Trump has often said that the United States could abandon Nafta altogether if renegotiating it is not possible. But the hawkish rhetoric of the campaign has given way to more measured statements on trade from the administration that track more closely with the stance of many congressional Republicans, who are avid promoters of free trade and deeply skeptical of policies they view as restrictive or protectionist. “In terms of what we consider to be President Trump’s economic nationalist objectives and what he has said previously about Nafta, the list of negotiating terms was relatively benign,” said Scott S. Lincicome, an international trade lawyer at White & Case.

American business welcomed the additional specifics on trade policy. “The details in the letter have whet our appetite for more,” said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce.

The tone of the eight-page draft letter, which was reported by The Wall Street Journal, did not echo Mr. Trump’s campaign speeches. Nowhere was there a mention of his threats to pull out of the agreement.

Antonio Ortiz-Mena, a former Mexican trade official, said the letter suggested a softening in tone but also contained several proposals that were likely to prompt a strong response from the Mexican government.

“There are some specific problems,” said Mr. Ortiz-Mena, now a senior adviser at Albright Stonebridge Group in Washington. “But in terms of the language used during the campaign and at the beginning of the administration, it’s not as far-reaching as some people could have expected.”

The assessment that the actual policies of the United States might not end up being as harsh as those espoused by Mr. Trump during the campaign is reflected in the confidence in the Mexican peso. Measured against a basket of currencies, it has gained about 17.5 percent in value since the inauguration, more than any other major currency. On Thursday, it traded at 18.72 pesos to the dollar, approaching the levels it held before Mr. Trump’s victory.

The Canadian government declined on Thursday to comment directly on the draft letter, because Nafta negotiations have not begun. “Should notice of intent to renegotiate be given, Canada is prepared to discuss improvements at the appropriate time,” said Global Affairs Canada, the country’s foreign ministry.

Rather than scrap Nafta’s arbitration tribunals, regarded by some free-trade critics as secretive bodies that give private corporations unbridled power to challenge foreign governments outside the court system, the letter proposed to “maintain and seek to improve procedures” for settling disputes. It made no mention of currency policy, an issue many trade experts had thought might be on the table. The administration did give itself room to get tougher. The proposal for reinstating tariffs, often referred to as a snapback, was billed as a “safeguard mechanism” to protect domestic industries. The draft also suggested efforts to “level the playing field” on tax treatment. Such measures could bring objections from Canada and Mexico.

Mr. Trump’s economic advisers have argued that Mexico uses its value-added tax as a tariff that puts the United States at a disadvantage. The president has called for a tax on companies that move their operations to Mexico and try to sell products in the United States. Republicans in Congress are considering a “border adjustment tax” that would make imports more expensive. Automakers and car dealers have expressed concerns that changes to Nafta could disrupt the strong vehicle market in the United States. General Motors, Ford and Fiat Chrysler operate plants in Mexico that supply models popular with American consumers, such as pickup trucks. Their assembly plants in the United States also rely on a steady flow of parts made by Mexican suppliers.

The industry, including dealers, is particularly worried that Mr. Trump will follow through on the border tax on vehicles imported from Mexico. The 90-day window gives members of Congress and industry players time to weigh in before the Trump administration opens the negotiations. “There is much to like about it,” Representative Kevin Brady, Republican of Texas and chairman of the House Ways and Means Committee, said of the draft letter. “There are areas where we are going to make suggestions.”

Speak Out Against Plans to Revive the Worst of the TPP through NAFTA

The Trump administration’s leaked plan to “tweak” the North American Free Trade Agreement (NAFTA) confirms one of our worst fears: that President Trump is poised to let big corporations dictate how NAFTA is rewritten.

hdr-contentDEMAND ACCOUNTABILITY: Speak out against the White House NAFTA plan that would further enrich corporate elites at the expense of working families.

Trump got into the White House, in large part, on the promise to end trade agreements that put corporate profits ahead of working people and healthy communities.  But the damage caused by NAFTA and other trade deals is about to become even worse if the plan outlined by his current trade representative is enacted.

Many of the very corporations behind NAFTA and the Trans-Pacific Partnership (TPP) have been salivating over the chance to use a shadowy NAFTA renegotiation process to their benefit.  They want to rewrite NAFTA to add in the worst of the TPP — raking in billions for themselves with disastrous consequences for the majority of people both at home and abroad.

The recent leak indicates that Donald Trump has given these big corporations the reigns over his trade policy.

The White House’s written NAFTA renegotiation plan signals an expansion of TPP-style provisions that would weaken food safety standards, restrict access to generic medications, deregulate Wall Street and offer completely inadequate labor and environmental standards.  The administration is not even proposing to eliminate the NAFTA chapter that threatens “Buy American” and “Buy Local” government procurement preferences, nor is it proposing to add language to combat currency manipulation.  This plan would hurt working people and people living in poverty in all three countries.

Perhaps most troubling still, the Trump plan explicitly states that it wants to maintain NAFTA’s special protections for corporations that make it easier to offshore American jobs and to attack our domestic laws — the controversial Investor-State Dispute Settlement (ISDS) provisions.

ACT NOW: Click here to speak out against the White House plan to sneak rejected TPP provisions into NAFTA.

And, by the way, it’s not just us who are saying the White House NAFTA plan is an attempt to give new life to failed TPP proposals.  Immediately after the plan was leaked the conservative, pro-TPP Cato Institute expressed relief, saying, “In a sense, this NAFTA renegotiation is an attempt to make NAFTA more like the TPP.”

Another pro-TPP columnist’s Forbes magazine article titled, “Trump Administration Makes a Surprising About Face on NAFTA,” cheered that, in reversing the President’s campaign promises to American workers, “cooler heads have prevailed in the White House.”

In the face of the backlash against the leaked NAFTA plan, White House Press Secretary Sean Spicer refused to comment on the document itself, suggested that White House plans are still in flux and that the administration “will have plenty of updates on where we go with respect to NAFTA and the rest of our trade agreements.”

By stepping up our opposition to corporate-dominated trade policymaking, Americans — as well as people in Mexico and Canada — can still be saved from an even worse version of NAFTA that increases corporate profits at the expense of good-paying jobs, affordable medicine and environmental sustainability.

Please take action now.

This horrible news and bodes very poorly for the future of trade policy under the Trump administration.  The one glimmer of hope is that, with enough public pressure, we can still stop the White House’s awful plans.

Many thanks,

Arthur Stamoulis, Executive Director
CITIZENS TRADE CAMPAIGN
Online: citizenstrade.org
Twitter: @citizenstrade

The paradoxes and pitfalls of Trump’s trade agenda

Whether President Trump’s trade policy can deliver on his stated goals of reducing the U.S. trade deficit and creating American jobs remains to be seen. Whether he can build congressional support for his trade agenda is also uncertain.

flags173212826.jpgMany congressional Republicans support the status quo. Many congressional Democrats oppose pacts like the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP). But the trade policy alternatives that Democrats have demanded for decades do not align with Trump’s nationalist, protectionist vision.

In this context, it’s worth considering Trump’s first days. He took horrifyingly overreaching actions on immigration, but did not employ authority he actually has over the trade issues that propelled him to victory in Michigan, Ohio, Pennsylvania and Wisconsin, and thus into the White House.

He did not deliver on a prominent “first-day” promised action—declaring China a currency manipulator. China accounts for $367 billion, or about half, of the massive U.S. trade deficit.

Despite the “buy American, hire American” slogan featured during and since Trump’s inaugural speech, also notably missing was an executive order reversing the waiver of Buy American policies provided by past presidents.

The waiver affords favored access to U.S. government contracts for all firms and goods from 45 World Trade Organization (WTO) nations and 16 additional U.S. free trade agreement (FTA) partner countries. By undermining the Buy Americanpreferences for government purchase of U.S.-made goods in place since the Roosevelt administration, this policy offshores U.S. tax dollars rather than reinvesting them to create manufacturing jobs here.

 Shockingly, a recent executive order ostensibly requiring U.S.-made pipe to be used in all pipelines projects actually includes language reinforcing this trade-agreement Buy American waiver.

Trump did follow through on formally withdrawing from TPP. But burying the moldering corpse of a dead deal that couldn’t gain a majority in Congress since it was signed a year ago despite the Obama administration’s best efforts does not create jobs or reduce the deficit.

What Trump does with the live agreements he inherited, most notably the U.S.-China Bilateral Investment Treaty (BIT), will be telling. The Obama administration failed to quite finalize that deal, but at its heart are the investor protections found in NAFTA and included in TPP that make it easier for U.S. firms to offshore jobs.

The pact also grants new rights for Chinese firms to acquire U.S. companies, land and more, and operate them under privileged terms. It would also empower Chinese firms operating here to sue the U.S. government outside of our court system to demand taxpayer compensation via the controversial investor-state dispute settlement regime Trump says he opposes. Given the pact’s terms and China’s role as a top target of Trump trade wrath, the absence of a first-week executive order terminating these negotiations was conspicuous. More so given the other major trade negotiations Trump inherited, both of the multi-country variety Trump opposes, seem fated to end. The Transatlantic Trade and Investment Partnership (TTIP) already was all but derailed by European public opposition.

And if continued, the Trade in Services Agreement (TISA) would become Exhibit #1 of Trump self-dealing after refusing to divest his business holdings. There are Trump investments in many countries involved in TISA, which deregulates the real estate, construction, property management, retail, and finance sectors.

Meanwhile, Trump missed the Jan. 30 deadline to give Congress the notice needed to start NAFTA renegotiations within his first 100 days, as promised. Regardless, revisiting NAFTA  could be an opportunity to create a new trade pact model that benefits more people. Given it’s packed with incentives for job offshoring, NAFTA must be replaced, not tweaked.

If done wrong, renegotiations could increase job offshoring and our current $169 billion NAFTA goods trade deficit, push down wages, and expand the protections NAFTA provides to the corporate interests that shaped the original deal. This bad outcome is likely if the 500 official U.S. trade advisersrepresenting corporate interests who have called the shots on past trade deals remain in place and talks occur behind closed doors without opportunities for the public to weigh in.

There are many possible pitfalls. Commerce secretary nominee Wilbur Ross says the administration will increase the amount of North American content that must be in goods to earn NAFTA benefits. But doing so without adding terms that raise Mexico’s wages—now 40 percent below labor costs in China—would likely trigger another wave of American job offshoring.

And the corporate interests that have rigged past trade deals view NAFTA renegotiation as a means to revive elements of TPP, including limits on competition from generic drugs so pharmaceutical firms can keep medicine prices high.

Starting with a clean slate and creating a new deal designed to deliver the desired outcomes is the best policy approach. It’s also how to avoid having a deal, like TPP,  that cannot get through Congress.

Even given the grand irony that Trump is the beneficiary of the fast-track authority narrowly delivered by GOP congressional leaders who oppose his trade agenda, enacting a NAFTA replacement will require House and Senate majorities.

And replacing NAFTA and rebalancing China trade will be vital to improving the relentless monthly U.S. trade deficit and jobs data that will show if Trump’s trade policies deliver.

Lori Wallach is the director of Global Trade Watch at Public Citizen.

The New Rules of the Road: A Progressive Approach to Globalization

The New Rules of the Road: A Progressive Approach to Globalization By Jared Bernstein and Lori Wallach

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The emergence of trade as a top election issue shows that the economic and social costs imposed by our current trade policy model have reached a tipping point. For purveyors of the status quo, this is a crisis, as the inherent inequities in their approach to trade have finally surfaced. For those of us who have long recognized such inequities, the current moment presents an opportunity to craft a new model, a new set of “rules of the road.” Far from trying to set back the clock on globalization, it is only through this new, far more inclusive, non-corporate-centric approach that we can rebuild American support for expanded trade. This will not occur by continuing to assert that, despite their experiences, those who perceive themselves and their communities as having been hurt by exposure to the forces of globalization are just plain wrong. Or that the next trade agreement will be the one that fixes everything. Or by offering the increasingly large portion of the population who find themselves on the losing side of the current rules some temporary adjustment assistance.

It will only change if we change the content of our trade agreements and, in turn, the process by which we negotiate them. The “new rules of the road” must reflect the economic realities and needs of a much broader group of stakeholders. Crucially, to achieve such rules will require much greater transparency and inclusiveness in the policymaking process, helping to ensure that the resulting substantive rules represent the needs of the majority. This memo focuses on the substantive and procedural changes needed to realize these goals. Globalization will surely proceed apace. Neither Donald Trump, Brexit voters, nor anyone else can put that toothpaste back in the tube. Nor should they.

It is through expanded trade that we seek new markets for U.S. products, expand the supply of goods and services, and provide emerging countries with opportunities to grow by trading with wealthy countries. But trade and contemporary free trade agreements (FTAs) are far from synonymous. The recent U.S. International Trade Commission (ITC) report on the “likely impacts” of the Trans-Pacific Partnership (TPP) underscores that these agreements are not mainly about cutting tariffs to expand trade nor about jobs, growth, and incomes here in the United States. Rather, they’re about setting expansive rules that determine who wins and who loses. For years, those advocating for the “winners” that have been able to capture the negotiating process essentially said to those hurt by the resulting agreements: “Don’t worry, this will be great for you too. And, hey, if it isn’t, we will make it all better with adjustment assistance and some training.” The hollowness of these false promises is finally evident to the broad electorate. The rules must be written for all the cars on the road, not just the Lamborghinis.

Our new framework starts from the premise that the current “trade” agreement process has been co-opted by corporate interests whose goal is to establish binding, enforceable global rules that protect their investments and profits. This corporate capture comes at the expense of both peoples’ rights to democratically govern their own affairs and the ability of sovereign governments to effectively enforce worker, consumer, and environmental safeguards. What follows describes a new set of rules of the road, one that puts the economic needs of working families at its core while excising corporate, protectionist influences from the rules. Achieving such inclusive policies will require a new policymaking process to replace the current system of opaque negotiations, a system heavily influenced by hundreds of official corporate trade advisors while the Fast Track process limits Congress’ role and the public is largely shut out.

Initiatives That Must Be Part of the “New Rules of the Road for Trade”

Enforceable currency disciplines
When the rules are fair, Americans can benefit from expanded trade. But when trade partners are free to lower the value of their currencies to gain trade advantages, the negative effects are twofold.

Enforceable and substantive labor and environmental rights
Global corporations engaging in global commerce absent a floor of enforceable international labor and environmental standards incentivize a race to the bottom between nations in wages, working conditions, and environmental and health safeguards. Globally accepted labor and environmental standards exist, but they lack effective enforcement and should also be strengthened. Trade partners’ implementation and consistent enforcement of domestic laws that provide the labor standards set forth in the International Labor Organization Conventions and the environmental standards provided by a more robust list of Multilateral Environmental Agreements must be the minimum requirement that is included in the core text of our trade agreements.

Tighter terms regarding “rules of origin”
In order for the benefits of our trade agreements to flow to the workers in the countries that sign the pacts and play by the rules, we must have clear “rules of origin” that can’t be easily gamed. Under the TPP, a majority of a car’s parts could come from China, but a car assembled in a TPP country still could enter the United States with the duty-free privileges reserved for those in the TPP. By tightening “rules of origin” such that only goods with a solid majority of member-country content are treated as originating from member countries, the benefits of the deal will more appropriately flow to its signatories and their workers.

Facilitating export opportunities and combatting transshipment
Trade agreements should focus on the basic logistics of trading goods and services across borders rather than investor protections that subsidize job offshoring, extended patents and other rent-seeking devices that increase consumer prices, and/or other elements of the agendas of large multinational corporations. This includes facilitating trade flows with rules to standardize and reduce unnecessary Customs paperwork. Currently, even with average tariff rates at a historic low, only 3 percent of U.S. small and medium enterprises export any good to any country. In contrast, 38 percent of large U.S. firms are exporters. And under past FTAs, small businesses – which are least able to deal with Customs complications – have lost export share.

Selecting appropriate trade partners
The goal of U.S. trade agreements should be to facilitate trade flows, create jobs, and raise wages. Having the right trade partners is as important as having the right rules of the road. Moreover, sequencing matters. We reject the notion that bad actors that violate workers’ and human rights will become good actors if we simply invite them to trade more with us. Sadly, there is considerable empirical evidence on past U.S. trade initiatives with China, Vietnam, Russia and other nations that supports our view.

This is an edited excerpt. Read the whole article here

Mainstreaming Fair Trade and resulting Turmoil: Where Should the Movement Go from Here

Fair Trade is an important tool in the pursuit of sustainability. It is a way of doing business that builds equitable, long-term partnerships between consumers and producers throughout the world. Fair Trade provides a stepping stone toward a just and sustainable economic system that ensures that people get paid a fair wage for their work. In short, Fair Trade moves businesses along the path toward sustainability. The Fair Trade movement has grown substantially in recent years, bringing both blessings and challenges.

An article by PAULETTE L. STENZEL

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The good news is that Fair Trade is becoming more widely known and sought out by consumers, and Fair Trade goods are offered by increasing numbers of companies, including multinationals. However, this has led to a major split among Fair Trade advocates.The “transformers” focus on the needs of producers and want to stay close to the origins of Fair Trade. Their goal is to link farmers to eaters and craftspeople to purchasers through non-corporate partnerships.

A second view is that of the “reformers,” who prefer to work within existing business structures. They focus on building volume so that Fair Trade can help as many producers as possible.

Part I
The need for Fair Trade, definition and its value in pursuit of sustainability defines Fair Trade, provides a brief history of Fair Trade, and discusses its value.

Part II
Discusses the motives of companies that sell Fair Trade, including original mission-driven companies as well as major corporations that have recently added Fair Trade goods to their product lines. Corporate participation is a step toward the mainstreaming of Fair Trade. However, it also contributes to a splintering of the Fair Trade movement. Fair Trade USA has separated from the Fairtrade Labelling Organization (“FLO”) because Fair Trade USA is choosing a different approach to the entry of conventional sellers into Fair Trade. Additionally, competing programs called Direct Trade, Direct Fair Trade, and others have entered the marketplace.Some of them avoid certification programs while promoting goals similar to those of Fair Trade. A few have created their own certification programs. Therefore, this section discusses the problems that arise from this divergence from the original mission-based model for sellers.

Part III
Identifies problems in Fair Trade and discusses possible new directions for the movement. Those possibilities include action by producers, consumers, non-governmental organizations, and government.

Part IV
This examines possible new directions, explains why some options should be rejected, and recommends steps to help Fair Trade progress. The Fair Trade movement needs time to develop. Therefore, consumer education should be expanded and transparency should be increased. All Fair Trade organizations should follow the example of those that currently provide complete information about their supply chains, including the identities of all suppliers and intermediaries. They should also reveal exactly how much of the purchase price goes to each member of the supply chain. While the government should support Fair Trade, it should refrain from creating its own certification program.

The various participants in Fair Trade have important roles to play as the Fair Trade movement develops: consumers, producers, businesses of all sizes, and even government. The government’s role, at this point, should be limited to facilitating the development of Fair Trade and similar programs. Fair Trade has come a long way since its post–World War II origins, and, if its development is facilitated and nurtured, it has the potential to help make trade more just and fair for millions of people throughout the world.

This is a long and scholarly article but of great interest to those interested in Fair Trade. Read the whole article here.

Letter to Trump – social and environmental justice in trade policies.

Opposition to status-quo trade agreements has grown during the two decades that Americans have lived with the negative consequences of numerous trade deals premised on the model set in the North American Free Trade Agreement (NAFTA).

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The more than 12 million Americans represented by the diverse member groups of the Citizens Trade Campaign represent a broad demand in this country for policies that create good jobs, raise wages, reduce inequality, protect the environment and ensure healthy communities. You made criticism of America’s trade agreements a central focus of your campaign. It is all well and good that you have announced that you will not revive the Trans-Pacific Partnership (TPP) that already had no chance of passing Congress. But will you end negotiations now underway to establish more TPP-style agreements — including the Trans-Atlantic Trade and Investment Partnership, the Trade in Services Agreement and the U.S.-China Bilateral Investment Treaty — and will you replace NAFTA and other existing agreements with trade policies that put working people and healthy communities first? NAFTA has been a disaster for working people, healthy communities and a clean environment in the United States, Mexico and Canada.

For more than two decades, the deal has prioritized corporate profits while offshoring jobs, eroding working class wages, displacing family farmers, fueling forced migration, increasing medicine costs, rendering food unsafe, polluting our air and water and destabilizing our climate. Millions of people across the United States, Canada and Mexico have long pushed for a NAFTA renegotiation that would halt the deal’s damage to the majority. Calling NAFTA “the worst trade deal in history,” you said you would “tell our NAFTA partners that I intend to immediately renegotiate the terms,” pledging to withdraw from it if you could not make it “a lot better” for working people.

This will require your administration to immediately notify Mexico and Canada that the United States will withdraw from the agreement as provided in NAFTA Article 2205, unless the deal’s many harmful provisions can be eliminated and critical additions made through a transparent Citizens Trade Campaign renegotiation process during the first year of your presidency. The rubric for assessing a NAFTA renegotiation is clear: Does it put the needs of people and the planet over corporate profits? Does it support — not undermine — good jobs, public health and a more stable climate? If your administration fails to achieve these fundamental goals, or delivers yet another corporate-favoring deal that threatens such priorities, we will oppose it at every step.

To create good-paying jobs, eliminate threats to our communities and otherwise benefit the majority, NAFTA must be replaced with an agreement that includes these essential changes:

  • Eliminate rules that incentivize the offshoring of jobs and that empower corporations to
    attack democratic policies in unaccountable tribunals
  • Defend jobs and human rights by adding strong, binding and enforceable labor and
    environmental standards to the agreement’s core text and requiring that they are
    enforced.
  • Overhaul NAFTA rules that harm family farmers and feed a destructive agribusiness
    model
  • End NAFTA rules that threaten the safety of our food.
  • Eliminate NAFTA rules that drive up the cost of medicines.
  • Eliminate NAFTA rules that undermine job-creating programs like Buy American.
  • Add strong, enforceable disciplines against currency manipulation to ensure a fair
    playing field for job creation.
  • Strengthen “rules of origin” and stop transshipment so as to create jobs and reinforce
    labor and environmental standards.
  • Require imported goods and services to meet domestic safety and environmental rules
  • Add a broad protection for environmental, health, labor and other public interest
    policies.

PO Box 77077 Washington, DC 20013 phone: 202-494-8826 http://www.citizenstrade.org Citizens Trade Campaign is a coalition of labor, environmental, religious, family farm and consumer organizations united in the pursuit of social and environmental justice in trade policy working together for social and environmental justice in trade policy

Read the whole letter here.

Trump Missed Deadline for Promised Start of NAFTA Renegotiation.

Trump Missed Deadline for Promised Start of NAFTA Renegotiation in 100 Days, But Whenever Talks Begin, It’s the Content, Not Speed, That Counts. Statement by Lori Wallach, Director, Public Citizen’s Global Trade Watch

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The Trump administration can rename NAFTA the North American Free and Most Fairest of Them All Trade Agreement, but given that NAFTA is packed with incentives to offshore jobs and special protectionist goodies for various industries, NAFTA must be replaced – not tweaked – to actually deliver better outcomes for working people. Monthly government data will show whether a NAFTA replacement delivers on the trade deficit reduction and job creation Trump has promised and to move those numbers will require a new deal that raises Mexican wage levels and environmental standards and eliminates NAFTA’s job and investment offshoring incentives and ban on Buy American procurement.

Replacing NAFTA is important, but with China counting for half of the U.S. trade deficit, it is odd that Trump has not announced an end to negotiations almost completed by the Obama administration for a U.S.-China bilateral agreement that includes the job offshoring incentives at the heart of NAFTA or declared China a currency manipulator on his first day as promised. It’s ironic that Trump is the beneficiary of the “Fast Track” trade authority narrowly enacted by congressional supporters of NAFTA. By delegating away its constitution trade authority, Congress has empowered Trump to unilaterally launch NAFTA renegotiations or create new bilateral deals with Mexico and Canada; determine the contents, sign and enter into deals before Congress gets a vote; and then write implementing legislation and force congressional consideration in 90 days with amendments forbidden and Senate supermajority rules suspended.

Under the Fast Track rules, Trump needed to have given notice on Monday, Jan. 31, to be able to start NAFTA renegotiations within his first 100 days as promised. If the 500 official U.S. trade advisers representing corporate interests who have had a privileged role in developing our past trade deals, including NAFTA, remain in place to shape NAFTA renegotiations, the resulting deal not only could be more damaging to working people, but – like the Trans-Pacific Partnership (TPP) – become impossible to enact. Even with Fast Track, Trump requires House and Senate majorities to enact a NAFTA redo. Most congressional GOP and their corporate allies support the offshoring incentives and other terms that must be eliminated if Trump is to deliver on his deficit reduction and job growth goals.

Building a congressional majority requires that a NAFTA replacement exclude terms that would alienate congressional Democrats who for decades have promoted NAFTA alternatives to expand trade without undermining American jobs and wages, access to affordable medicine, food safety or environmental protections. (See Citizens Trade Campaign’s Jan. 13 letter to Trump and U.S. Rep. Rosa DeLauro’s Jan. 3 letter to Trump on what must be in a NAFTA replacement for it to provide broad benefits.) Many congressional Republicans and the corporations that have rigged past deals view NAFTA renegotiation as a means to revive aspects of the TPP. This includes limits on generic competition that bring down medicine prices for consume