Monthly Archives: February 2018

The Real Game Trump Is Playing on NAFTA

He isn’t negotiating. He’s stalling for time.


As the United States, Canada and Mexico head into the seventh round of the renegotiation of the North American Free Trade Agreement, there is a question increasingly looming over the talks: Why hasn’t Donald Trump pulled the plug already?

The president has made no secret of his loathing for NAFTA, calling it during the campaign “the worst trade deal in history.” He came very close to ending it nearly a year ago, in April 2017, but reportedly was talked down at the last minute by personal calls from Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto. Throughout the year, as the negotiations dragged past their original end-of-2017 deadline with no progress in sight, Trump continued to threaten withdrawal. As recently as the last round in Montreal in January, Canadian officials were telling reporters in advance that they were certain Trump was on the verge of pulling the U.S. out of NAFTA.

And yet, even with the president’s top trade negotiator acknowledging last month after the Montreal round that the talks are “progressing very slowly,” Trump now looks increasingly unlikely to leave the table. He told the Wall Street Journal that he was “leaving it a little bit flexible,” and acknowledged that it would be hard to conclude a new NAFTA prior to Mexico’s general election on July 1. “There’s no rush,” he added. That could mean the talks will now drag on until 2019, since the new Mexican president will not even take office until December.

Is Trump getting cold feet, then, on NAFTA? That is certainly possible — pressure from pro-trade Republican members of Congress and from Republican governors from export-dependent states has been growing. Pulling out of NAFTA would generate a backlash within his own party, and would probably upset financial markets as well.

But there is another possible explanation. Whether by design or by luck, Trump is already winning the NAFTA renegotiation. It turns out the uncertainty over NAFTA’s fate is Trump’s friend. It is part of what appears to be a systematic — U.S. trading partners might say predatory — strategy to shift investment dollars to the United States.

I have had conversations with business leaders in recent weeks in which they all quietly acknowledge the same thing: Until they know what the new rules will be under NAFTA, they are likely to hedge their bets by locating new investments in the United States rather than in Canada or Mexico, just in case the rules change and they are frozen out of the largest North American market.

The most explicit move was the decision by Fiat Chrysler last month to move production of some Ram heavy duty pickup trucks from Saltillo, Mexico, to Warren, Michigan, creating about 2,500 jobs in the U.S. If NAFTA disappears, or the rules for automobile content are changed significantly as the Trump administration wants, a Mexican-built Ram truck could have faced a 25 percent import duty in the United States. Moving production to Michigan takes that risk off the table. Trump has taken credit for other decisions, like Toyota’s announcement of a new $1.6 billion car plant in Huntsville, Alabama, although that decision appears to have been in the works before Trump’s election.

Trade uncertainty might not be enough on its own to shift investment flows significantly. But the administration and congressional Republicans have been piling on the sweeteners.

The Republican tax bill Trump signed into law in December cut the headline U.S. corporate tax rate from 35 percent to 21 percent, moving the United States overnight from having the highest marginal corporate tax rate among the advanced economies to one of the lower rates. The tax bill included numerous other incentives, including immediate expensing of capital investments, which will make the United States a far more attractive location for new or expanded manufacturing plants.

The administration also has been pursuing an aggressive deregulation agenda, moving to roll back or eliminate regulations that are costly for many businesses, including elements of the Clean Power Plan, new overtime pay rules, workplace safety rules and fuel economy standards.

Perhaps most striking has been the Trump administration’s dollar policy. With occasional deviations, the United States has favored a strong dollar since at least the early years of the Reagan administration, with officials believing a strong currency was important for international financial stability and served as a bulwark against inflation. But at Davos last month, Treasury Secretary Steve Mnuchin explicitly abandoned that policy. “Obviously, a weaker dollar is good for us as it relates to trade and opportunities,” he said at a news conference aimed at pitching the United States as an attractive investment location.

The statement was indeed obvious — all other things being equal, a weaker dollar makes the United States a more competitive place to do business for globally traded goods, and should increase investment and boost exports. And the markets seem to be listening. In the year since Trump took office, the dollar has fallen more than 10 percent against the other major currencies despite interest rate increases from the Federal Reserve, which normally drive the dollar up.

All of these add up to an aggressively pro-investment set of policies. The message to business is clear: There are dangers and risks to investing outside the United States and enormous incentives to get with the administration’s program.

Trump has, in fact, been quite explicit about his intentions all along. In his major campaign speech on U.S. trade policy in June 2016, in the once-thriving and now depopulated steel town of Monessen, Pennsylvania, he said new trade policies were only one facet of his larger goal, to “make America the best place in the world to start a business, hire workers and open a factory.”

Politically as well, uncertainty is the president’s friend. If he pulls the plug on NAFTA, he angers Republican allies and roils the markets. But if he does a deal, then he will have to pivot from being NAFTA’s biggest critic to being a cheerleader for the new agreement in Congress, which Democrats are all but certain to denounce as inadequate. A long negotiation in which he can continue to claim he is fighting for a better deal looks by far the best bet.

So what’s not to like? First, the strategy risks retaliation as Canada, Mexico and other U.S. trading partners catch on. Already, the United States is facing a flurry of complaints over its increasingly aggressive use of antidumping and countervailing duty laws to impose new tariffs on imports. The United States turned away from these “beggar thy neighbor” policies for a reason in the 1930s — while they might generate short-run gains, in the longer run U.S. leaders realized the country was better served by policies that enriched the United States and its trading partners.

Secondly, the administration’s own protectionist impulses could undermine the strategy. The Commerce Department earlier this month recommended significant new, across-the-board tariffs on steel and aluminum imports, resurrecting an obscure 1962 law to claim that imports are damaging the U.S. industrial base and threatening national security. But steel is still the material of choice for automakers, and aluminum is increasingly popular. New trade restrictions that drive up domestic costs for manufacturers could more than offset the inducements the Trump administration has offered; other big losers would be construction equipment makers like Caterpillar, shipbuilders and the oil industry.

Finally, the administration will need to find an off-ramp. The NAFTA renegotiation cannot go on indefinitely; at some point the president will either have to bite the bullet and pay the political and economic cost of withdrawal, or accept some compromise deal that will be all but impossible to sell on the campaign trail if he seeks reelection. Neither option will be appealing for Trump.

But for the moment, the president has got a good game going. Expect him to keep playing it as long as he can.

Taken From:

5 Reasons Mexican Workers Would Cheer the Demise of NAFTA

Mexicans have plenty not to like about Donald Trump: his racism, his wall, his tirades against immigrants. But if there’s a disruption provoked by Trump we should actually embrace, it’s the renegotiation of NAFTA—or even the trade pact’s possible end.


Along with Mexico’s upcoming presidential elections on July 1—in which center-left candidate Andres Manuel Lopez-Obrador (AMLO, as he is popularly known) is the clear front runner—the possible unraveling of NAFTA has the country’s business elite and political establishment freaking out.

While AMLO sees the renegotiation of NAFTA as an opportunity for meaningful changes that would benefit the majority of Mexicans, Mexican negotiators from the ruling establishment party have been very busy trying to secure a deal before the vote, in order to keep the status quo as intact as possible.

During its 24 years, NAFTA has helped to widen inequalities in Mexico, Canada and the United States alike—and to play workers in the three countries against each other. Since the pact went into effect, inequality in Mexico has risen to levels at triple the OECD average, while about half of the population remains in poverty.

An end to NAFTA could help Mexico finally reduce its economic and political subordination to the United States, diversify its trade relations and develop a sovereign economic policy that benefits its population—not only transnational corporations.

Here are at least five reasons why most Mexicans would cheer the end of NAFTA.

1. NAFTA has been a net job destroyer in Mexico.

The most contentious issue in the NAFTA talks is the prevalence of very low salaries and labor standards in Mexico, which companies from the United States and Canada have exploited ruthlessly by moving jobs south of the border. This pressure has led the U.S. team to call for better labor standards in Mexico—a major progressive demand the administration would likely never take up for U.S. workers at home.

In the latest rounds of negotiations, the U.S. and Canadian governments have proposed raising the minimum wage in Mexico. A recent letter signed by 183 members of Congress urges the U.S. Trade Representative to negotiate “a new NAFTA” with “strong, clear and binding provisions that address Mexico’s labor conditions.” And Peter Navarro, a trade adviser to Trump, said recently that “higher wages in Mexico are in the interests of Mexico and the United States. Without this adjustment, Mexico will never have a robust middle class, and our middle class will wither if not die.”

The United States and Canada are also pushing for tougher Mexican labor standards, such as ensuring that Mexican workers can freely organize unions and stage strikes without fear of losing their jobs.

However, the Mexican government contends ludicrously that “salary policy is an internal matter.”

Worse still, a new labor bill being proposed in Mexico would eliminate all restrictions on subcontracting, including those that require “common-sense” compliance with health and safety laws. Labor organizations like the AFL-CIO have warned that the bill’s “overall impact would be to prevent unions fighting for a living wage,” Reuters paraphrases, and would “lure more jobs south of the border.”

NAFTA was sold to Mexicans as a deal that would reduce the salary gap between Mexico and its neighbors to the north. In fact, this gap has only widened. Manufacturing workers in Mexico earn an average wage of about $13 a day, while the typical assembly-line worker in the United States makes $25 per hour, according to the Labor Department. As the Chicago Tribune reports, “In Mexico, $2 per hour workers make $40,000 SUVs.”

What would happen to NAFTA jobs in Mexico if the pact ended? Not much.

Although the Mexican government and the business elite boast that NAFTA has made Mexico into an exporting powerhouse of the manufacturing sector, the overall job market is not so dependent on exports.

As Alberto Arroyo Picard, a professor at the Autonomous Metropolitan University in Mexico City, told In These Times, a forthcoming paper of his demonstrates with official data that Mexico´s manufacturing exporting sector accounts for only 2.4 percent of the total jobs in the country.

One could argue that many other jobs in Mexico depend on foreign investors—for example, the retail sector. However, as they have in the United States, foreign companies like Wal-Mart have displaced scores of smaller Mexican companies, destroying countless jobs. According to small and medium business leaders in the country, more than 600,000 companies have gone bankrupt during the current administration alone, and only 5 percent of Mexico´s companies export.

2. Multinational companies have used NAFTA to devastate Mexico’s environment.

Despite containing a nonbinding environmental side agreement, NAFTA’s “environmental safeguards” never had the funding or legal mandate needed to actually protect the environment. And so NAFTA has had a terrible effect on the health of North American communities, as several co-authors and I documented in a 2014 report published by the Sierra Club.

In Mexico, we wrote, “NAFTA has encouraged a boom in environmentally destructive mining activities.” One reason? Along with passing NAFTA, the Mexican government ratified national laws that “facilitated the entry of Canadian and U.S. mining corporations into Mexico,” our report states, giving them easy access to lands and mineral resources.

Since then, the Mexican government has granted more than 32,000 mining concessions and devoted more than 20 percent of Mexico’s land to mining, which has been devastating for the environment. Mexico has meanwhile become the world’s leading importer of toxic sodium cyanide for mining, which is a major source of water contamination.

While the rights of foreign mining companies are strongly protected under NAFTA, the pact’s environmental side agreement has not required Mexico to better regulate the harmful environmental impacts of runaway extraction. Commercial rights are better protected than environmental and human rights.

3. NAFTA has destroyed the livelihoods of millions in the Mexican countryside.

NAFTA backers’ promise that Mexico would become an “agro-exporting power” failed. Instead, Mexico now imports 45 percent of the food it consumes, making it one of the most import-dependent countries in the world for food.

Mexico now relies heavily on the United States for basic staples like corn, soy, wheat, rice, and beans. According to one study, in fact, a stunning 99 percent of Mexico’s imports of corn come from the heavily subsidized U.S agriculture industry. All this has cost Mexico more than $20 billion in the last five years alone.

Food dependency reflects the devastation of Mexico’s small farmers’ livelihoods since NAFTA. Left to compete with U.S.-based mega-exporters, millions of Mexican farmers have been driven out of work, driving displacement, impoverishment and massive social disruption—and creating huge opportunities for organized crime groups.

Victor Suarez of the National Association of Rural Commercialization Enterprises has said that what Mexico needs is to “reach food self-sufficiency” and “re-activate the internal production of food to generate employment, income and opportunities to young people” to keep them “from resorting to migration or organized crime.”

4. Corporations are using NAFTA to roll back legitimate government measures aimed at protecting health and the environment. 

Although foreign direct investment from NAFTA has been heralded as the panacea for economic growth, Mexico’s economy grew at “an anemic 1.2 percent growth rate per capita from 1994 to 2016,” according to The Washington Post. And even that modest growth has been heavily concentrated in few economic enclaves, accentuating regional disparities.

To attract this investment, the Mexican government agreed to enormous curbs on its ability to regulate industry.

NAFTA’s “investment chapter” helped establish a so-called Investor-State Dispute Settlement (ISDS) mechanism that lets corporations sue governments in supranational tribunals, like the World Bank’s International Center for the Settlement of Investment Disputes, when a government’s regulation in the public interest tampers with corporate profits.

This means that multinational companies and unelected foreign bureaucrats, not voters and their representatives, get the final say over many health and safety regulations that impact local populations.

The first case under NAFTA was concluded in 2000, when a World Bank tribunal ruled in favor of the U.S. waste management company Metalclad, forcing Mexican taxpayers to pay the U.S. company $16.7 million. The reason was that a municipality in San Luis Potosi had denied the company a construction permit until existing toxic contamination was cleaned up.

This was just the beginning. To date, Mexico has paid more than $200 million under similar ISDS, with more than $1 billion more in pending cases.

These provisions have come under huge criticism from civil society groups, which argue that they make it easier for corporations to roll back legitimate government measures aimed at protecting health, the environment and other priorities. Now even the U.S. Trade Representative office is considering a proposal for the NAFTA renegotiations that would give each of the countries the option to opt-in or out of the controversial provision, as Inside U.S. Trade reported.

However, the Mexican government is trying to preserve ISDS. Why would lawmakers seek to continue being handcuffed in policy making?

In talks over another agreement — the Transpacific Partnership — Mexican Secretary of Economy Ildefonso Guajardo gave a reason: “The trade agreement will give protection” in the event that “future presidents of the country try to revert Mexico´s energy reform.”

In other words, ISDS is a tool for the present government to cement the privatization of Mexico’s oil and other industries. No wonder Jack Gerard, head of the American Petroleum Institute, says that ISDS is crucial to maximizing the industry’s economic upside in a new NAFTA deal.

5. NAFTA made Mexico the most obese country in Latin America.

Because the initial promises for NAFTA utterly failed, the new spin is to hype its “consumer benefits.”

Extreme examples in The Washington Post, for instance, celebrate that Mexico is “buying more U.S. goods than ever” and that in “Mexico’s Costco stores, staples such as tortilla chips and chipotle salsa are trucked in from factories in California and Texas that produce for both sides of the border.”

Another article in the Post celebrates the Americanization of Mexico, saying that “Mexicans have become accustomed to such luxurious shopping centers, where you can browse Williams-Sonoma crockery, try on Steve Madden shoes, eat at Olive Garden, take your kids to Chuck E. Cheese’s, and watch War for the Planet of the Apes on the big screen.”

The reality is that the Americanization of Mexican culture has meant the destruction of Mexico’s food security and sovereignty—and with it, Mexicans’ health. The consumption patterns encouraged by a glut of U.S.-made processed foods have made Mexico the second-most obese of the OECD, with diabetes becoming the country’s leading cause of death.

The Institute for Agriculture and Trade Policy has documented that Mexican diets under NAFTA have shifted “from traditional food staples toward energy-dense, processed foods and animal-source foods—which tend to be higher in fats and added sweeteners.” The New York Times similarly reported late last year that NAFTA had transformed Mexico “in a way that would saddle millions with diet-related illnesses.”

Meanwhile, in a sad irony that speaks to the inequality and disparities provoked by NAFTA and related policies, some 8,000 Mexicans die of malnutrition every year.

What Mexico Needs Instead of NAFTA

Any new integration model for North America should be based on justice, equality, democracy, peace and care of the environment.

Mexico needs trade agreements that include binding labor chapters, support small and medium companies and don’t rely on suppressing wages. Complex, anti-democratic investor privileges should be excluded.

Instead of greater deregulation, Mexico should push for a new agreement of cooperation and complementation in North America, one that strengthens our internal economy, devolves food sovereignty and self-sufficiency, elevates the rights of workers and the environment and diversifies our relations with the world.

Taken From:

The Rise of China and the Fall of the ‘Free Trade’ Myth

China’s economic success lays bare an uncomfortable historical truth: No one who preaches ‘free trade’ really practices it.


‘America first does not mean America alone,” President Trump declared last month at the World Economic Forum in Davos, Switzerland. This sudden burst of pragmatism from an avowed nationalist showed what a difference a year can make. Denouncing the “false song of globalism” during his presidential campaign, Trump, on his third full day in office, canceled the Trans-Pacific Partnership, a regional trade deal with Japan and 10 other countries. He then denounced Canada, Germany and South Korea for exporting more to the United States than they import. He promised to renegotiate trade pacts with Europe, Canada and Mexico and get a better deal for American workers. In Davos, however, he reached out with conciliatory words to the very free-trading and globalizing elites he has consistently maligned.

Clearly, Trump’s views on trade and globalization have evolved since his insurgent campaign. This may well be because of the rapid gains in the past year of a country he did not mention by name. In fact, Trump chose in Davos to affirm that “America is open for business” because it was in these same Alpine heights, three days before Trump was inaugurated as president, that China seized the opportunity to claim leadership of the global economy. With the United States seemingly in a protectionist crouch, China had become, despite all its problems, indispensable. “In a world marked by great uncertainty and volatility, the international community is looking to China,” Klaus Schwab, the founder of the World Economic Forum, said last year while introducing his guest, the Chinese president and general secretary of China’s Communist Party, Xi Jinping.

As the usual gaggle of hedge-funders, Silicon Valley executives and government officials looked on, Xi rose to defend free trade and globalization against the relentless attacks of Trump. “Some people blame economic globalization for the chaos in our world,” Xi said. “One should not retreat to the harbor when encountering a storm, for this will never get us to the other shore of the ocean.” Xi then confidently quoted Dickens. “ ‘It was the best of times, it was the worst of times.’ These are the words used by the English writer Charles Dickens to describe the world after the Industrial Revolution. Today, we also live in a world of contradictions.”

Never mind that Dickens was actually describing the world before the French Revolution. Xi’s claim of openness was, to say the least, riddled with contradictions of its own. It is increasingly difficult for foreign companies to do business in China; Beijing’s “Made in China 2025” industrial policy aims to increase “indigenous innovation” and self-reliance. When Trump, a year later in Davos, denounced such “unfair economic practices” as “industrial subsidies and pervasive state-led economic planning,” there was little doubt which nation he had in mind.

Yet Xi is entitled to some of his rhetorical point-scoring. The financial crisis of 2008 greatly weakened the American economy, but it left China relatively unscathed. More important, China, whose share of world trade in the mid-1970s was less than 0.5 percent, is today the world’s leading exporter — the hub of new and increasingly dense transcontinental trading networks that bypass the United States. “When the United States grows, so does the world,” Trump claimed in Davos. But America’s status as the linchpin of the global economic order is now endangered. The trading system China dominates has reduced the long dependency of Latin American and sub-Saharan African countries on American and European markets. China is now bringing to a close the first phase of globalization, begun by Europe and the United States in the 19th century. In the process, it is making East Asia the new center of the world economy.

It has fallen upon Trump, as president of the United States, to respond to this momentous historic shift, and he has done so with his characteristic mix of threats, boasts and volte-faces. But to grasp China’s economic achievement, and its ramifications, it is imperative to ask: Why has a market economy directed by a Communist state become the world’s second-largest? Or, to rephrase the question: Why shouldn’t it have? Why shouldn’t China’s rise have happened the way it did, with state-led economic planning, industrial subsidies and little or no regard for the rules of “free trade”?

The economic success of East Asian countries like Japan in the 20th century had already invalidated the article of faith invoked by Trump in Davos: that nations can advance only by eliminating barriers to the free movement of goods and capital and by minimizing the role of government in the economy. But these historical lessons have long been obscured by economic orthodoxy, one that Trump’s — and China’s — unexpected ascents have now exposed to critical scrutiny.

In his most recent book, “Straight Talk on Trade,” the Harvard professor Dani Rodrik castigates fellow economists for holding fast to a simple-minded view of free trade and globalization, one that he believes has caused economic chaos and political backlash across the West. “Are economists,” he asks, “responsible for Donald Trump’s shocking victory in the U.S. presidential election?” This might be overstating the case. But it is true that the argument that free markets equal progress was most eloquently and influentially advocated by the American economist Milton Friedman.

The paradoxes of China’s rise today are best illuminated by Friedman’s querulous visit to the country in 1980, when China was desperately poor. The Nobel laureate from Chicago was then cementing his reputation as an apostle of free markets. He had just published “Free to Choose,” a book that was written with his wife, Rose, and later turned into a television series featuring, among others, Ronald Reagan, Arnold Schwarzenegger and Donald Rumsfeld. Friedman’s argument, that “the world runs on individuals pursuing their separate interests,” would shape American economic policy for decades to come. He helped disparage the idea, exemplified most vividly by Franklin Roosevelt’s New Deal, that government had a legitimate, and often indispensable, role to play in advancing economic development and protecting the vulnerable. As his keen disciple Reagan famously put it, “Government is not the solution to our problem; government is the problem.”

Friedman’s fervent advocacy of free trade and the efficiency of unregulated markets gave intellectual ballast to the so-called Washington Consensus. Free markets, the thinking went, not only generated wealth for all nations but also maximized consumer choice, reduced prices and optimized the use of scarce resources. Friedman’s faith in the efficiency of markets came to constitute what John Stuart Mill referred to as “the deep slumber of a decided opinion.”

Friedman was the most influential proponent of free trade since Adam Smith declared it, in 1776, the basis of the wealth of nations. But in 1980, few people in China, including the academics who invited Friedman to a lecture tour, knew that their American guest was an impatient, even volatile, ideologue.

A series of (often comical) misunderstandings ensued. Friedman complained about the Chinese man with a “terrible body odor” who received him at the Beijing airport; the man turned out to be one of his academic hosts. Friedman’s lectures in praise of free markets were met with bewilderment. His assertion that capitalism was superior to socialism disturbed the Chinese greatly. Some of the more agitated Chinese economists went in a delegation to Friedman’s hotel to lecture him about the achievements of their regime.

Friedman, who (erroneously) saw Japan and South Korea as brilliant examples of open, competitive markets, was understandably impatient in China; the country embodied everything that was wrong with government planning. Indeed, China in 1980 was just lurching out of Mao Zedong’s calamitous experiments. Deng Xiaoping’s government was trying to improvise new solutions to the country’s economic backwardness, which officials thought had exposed China to humiliation in the 19th and early 20th centuries. “Development,” Deng said, “is the only truth. If we don’t develop, we will be bullied.” And national development, in Deng’s view, could be achieved by a variety of means. His flexible attitude was summed up by a much-popularized Chinese maxim: “Cross the river by feeling for the stones.”

The Chinese couldn’t help bristling at Friedman’s blunt dismissals of their government. Despite horrific disasters, the Chinese state had drastically raised literacy and life-expectancy levels. Also, the Chinese were then seeking a third way: They looked to Japan and Singapore rather than the United States for economic models that would accelerate growth without endangering the authority of the Communist Party. The Chinese saw little of value in an American proponent of laissez faire. Friedman left China, angrily claiming that his hosts were “unbelievably ignorant about how a market or capitalist system works.

Friedman died in 2006, shortly before the financial crisis of 2007 and 2008. The extensive political aftershocks of that crisis arguably include the election of a protectionist to the highest office in the United States, who has threatened to cancel decades of commitments to free trade at the risk of alienating his country’s closest allies.

As bewildered (and appalled) as Friedman would most likely have been by Trump’s demonization of free trade, he would have found it still harder to explain why China, run by a Communist Party, has emerged as central to the global capitalist economy. For the Chinese regime achieved this not by liberating its 1.4 billion citizens to maximize their private interests in unfettered markets but by controlling its currency, owning large businesses and intervening heavily in investment decisions by private companies.

Indeed, economic history reveals that great economic powers have always become great because of activist states. Regardless of the mystical properties claimed for it, the invisible hand of self-interest depends on the visible and often heavy hand of government. To take only one instance, British gunboats helped impose free trade on 19th-century China — a lesson not lost on the Chinese. Britain was protectionist before it was a free-trading nation. The United States itself was, while industrializing, the “mother country,” as the economic historian Paul Bairoch wrote, “and bastion of modern protectionism.” Its average tariffs in the late 19th century were nearly as high — 45 percent — as the steepest ones Trump has slapped on imports of washing machines. The philosophical father of economic protectionism is, in fact, Alexander Hamilton, the founder of the American financial system, whose pupils included the Germans, the Japanese and, indirectly, the Chinese.

No story is as instructive as that of the Japanese, arguably the most diligent of Hamilton’s disciples. Post-1945 Japan preceded China as the hub of regional and intercontinental trade networks. Soon after its disastrous part in World War II, Japan helped revitalize Asia and by the mid ’90s was the biggest investor and exporter in most East Asian countries; it gave more foreign aid and sent more tourists to them and was the biggest buyer of their raw commodities. What’s more, it offered a model for development that combined a market economy with state intervention — one that China was even then beginning to learn from.

How did Japan, a country devastated by a world war that had few natural resources of its own, achieve economic primacy in Asia? Friedman’s explanation in “Free to Choose” was that “free trade set off a process that revolutionized Japan and the lives of its people.” Francis Fukuyama, who proclaimed the end of history in 1989, credited Japan’s success to “economic liberalism” of the kind espoused by Adam Smith. But the Japanese followed a very different model, one adopted from Hamilton.

Japan learned early the political risks of economic stagnation. At the height of 19th-century imperialism, it signed a humiliating treaty that subjected its trade policy to the control of five Western powers, deprived it of the right to impose tariffs, set radically low import duties and gave foreign residents in trading ports extraterritorial status. Smarting from such insults, the conservative Meiji rulers of Japan became obsessed with regaining their sovereignty and protecting themselves from foreign tormentors.

In this endeavor, they looked to Germany. Unified in 1871, Germany was scrambling to catch up with industrialized Britain. To do so, it borrowed from recipes of national development proposed by Hamilton soon after the Americans broke free of their British overlords. In his “Report on the Subject of Manufactures,” submitted to Congress in 1791, Hamilton used the potent term “infant” industries to argue for economic protectionism. Hamilton’s father was Scottish. Born in the West Indies, then a British colony, Hamilton was keenly aware of how the British practiced protectionism: preventing colonies from competing while selling their own goods around the world. In his view, infant nations needed room to maneuver before they could compete with established industrial powers. The United States embraced many of Hamilton’s recommendations; the beneficiaries were, first, the textile and iron industries and then steel.

It was Hamilton’s formula, rather than free trade, that made the United States the world’s fastest-growing economy in the 19th century and into the 1920s. And that formula was embraced by other nations coming late to international economic competition. Hamilton’s most influential student was a German economist named Friedrich List, who lived in the United States from 1825 until the 1830s and wrote a book titled “Outlines of American Political Economy.” On his return to Germany, List attacked the free-market gospel preached by Britain as sheer opportunism. In his view, the British could afford to kick away the ladder of protectionism they had climbed to the summit of global industry and manufacture. He was all for free trade, but only after young industries had been nurtured in a protective environment. Applying List’s lessons, Germany moved with spectacular speed from an agrarian to an industrial economy.

The stakes were higher for Japan. There was hardly a country in Asia that had not been forced by Britain, Holland and France into unequal trade agreements. Economic liberalism was not a feasible option. The visible hand — the state rather than the market — was needed to guide development. Closely following Germany’s example, Japan heavily subsidized its first factories, copied British design and imported foreign machinery and engineers. It not only protected many of its businesses from excessive competition but also guaranteed them a minimum profit.

When World War I disrupted Europe’s monopolies in its Asian colonies, Japanese companies moved in with their textiles, bicycles and canned foods. Following Europe’s free-trading imperialists, Japan had invaded and occupied Taiwan and then Korea, turning them into protected markets for its small industries. In a further refinement, the Japanese state bribed and coerced manufacturing companies. It gave them subsidies to export more, which in turn helped the companies fund innovations and become internationally competitive.

World War II proved only a brief interruption in Japan’s policy of protection. Utterly devastated, Japan still managed to rid Asia of its European competitors. It was during the American occupation, as the historian John Dower notes, that Japan instituted what an economist described as the most “restrictive foreign-trade and foreign-exchange control system ever devised by a major free nation.”

Given unlimited powers by their American occupiers to get the country going again, the bureaucrats of Japan’s Ministry of International Trade and Industry laid the foundations of a world-class manufacturing economy. Nationalism was a great stimulus. As Dower put it, “National pride — acute, wounded, wedded to a profound sense of vulnerability — lay behind the single-minded pursuit of economic growth that created a momentary superpower a mere quarter-century after humiliating defeat.” But Japan would have struggled had war not erupted on the Korean Peninsula in 1950 and made Japan the main source of American procurements. The path of Japan’s protectionist state was now set — the country’s prime minister, Shigeru Yoshida, would call the destructive Korean War a “gift of the gods.”

In the 1950s, Korea and Taiwan, both former Japanese colonies, inherited Japan’s institutions and protectionist practices. This was most striking in Korea, which was intensely poor in the early 1950s; its few industries were built by Japan during the 1930s. South Korea, too, found solutions for its problems in Friedrich List rather than Adam Smith. The country’s leader, Park Chung-hee, the military general who came to power in 1961, had worked for the Japanese colonialist regime. A fervent autodidact, Park was also deeply familiar with German theories of protectionism. (The economist Robert Wade reported coming across whole shelves of books by List in Seoul bookstores in the 1970s.) During his long years in power, Park nurtured South Korea’s chaebol business groups — Hyundai, Daewoo and Samsung — and boldly ventured into steel-making.

Because the United States saw Korea, Taiwan and Japan as a buffer against Communism, it helped promote such neomercantilist strategies — a mix of import substitution and export-oriented industrialization. American cold warriors also gave their strategic allies unhindered access to U.S. markets while tolerating the closure of their own to American investment. By the time the United States realized that its biggest Asian ward had grown too big, it was too late. Japan had taken many products invented in the United States (automobiles, consumer electronics) and manufactured them more cheaply and with superior quality. By the 1980s, Japan had supplanted the United States in aid and investments in East Asia. When the United States sought to limit Japanese exports, the Japanese responded by deepening their investment in Asia, moving factories and improving industrial skills and technology wherever they went.

In 1994, when I first left India to travel to Southeast Asia, I found Japan everywhere, as both promise and rebuke. The renovation of Thailand, South Korea and Taiwan under Japanese auspices was then an established fact — and a standing reproach for us in India, which had failed to match East Asia’s success in manufacturing and trade. Like most countries in the world after 1945, France as much as Japan, India embraced a model of state-led development. Its aim, as in many nations liberated from colonial rule, was not so much the growth of private wealth as the strengthening of national power. Friedman described Indians in “Free to Choose” as deluded followers of Mahatma Gandhi, idly spinning cotton in cottage industries subsidized by the state. India, he said, was blind to industrialization and, furthermore, believed in central planning. This was a caricature: India had an ambitious industrialization program, and its economy mixed private markets with state-owned enterprises, even if its historical experience of British rule predisposed it to suspect that free trade benefited only developed industrial economies. Nevertheless, Friedman was broadly right in his view of India as a social and economic laggard.

India, following a model of import-substitution growth, barely participated in world trade. Its factories produced shoddy goods that you bought only because there were no alternatives. And so I was dazzled by what was on offer in Southeast Asia. The emblems of pop American culture — Kentucky Fried Chicken, McDonald’s, Madonna — were everywhere. But the most seductive consumer goods were almost invariably Japanese: Sony, Sanyo, National, Mitsubishi, Hitachi, Fuji.

Feeling inadequate before East Asia’s progress, many middle-class Indians longed for what Chalmers Johnson, in a book about Japan’s unique growth, called the “capitalist developmental state.” In such states, skilled bureaucracies led by authoritarian leaders promoted a project of national development (while either paying lip service to, or ignoring, democratic norms). Private entrepreneurs made socially beneficial investments; government policies helped build their comparative advantage while also facilitating social stability with land reforms, education and other efforts to address income equality.

The “developmental state” assumed that market failures were to be expected and that the state played a necessary role in designing industrial and financial policy. These included not only trade protection and government subsidies but also, as the political economists Robert and Jean M. Gilpin wrote in “Global Political Economy” in 2003, “selective credit allocation and deliberate distortion of interest rates in order to channel cheap credit to favored economic sectors.” Governments were, in fact, very much part of the solution, as even the World Bank, beholden to the Washington Consensus, grudgingly acknowledged in its well-known 1993 report, “East Asian Miracle.” The high-performing Asian economies, it noted, “have achieved unusually low and declining levels of inequality, contrary to historical experience and contemporary evidence in other regions.”

The hero of many middle-class Indians was the authoritarian leader of Singapore, Lee Kuan Yew, whose success in turning Singapore from an economic backwater into one of the world’s major commercial cities was much admired by Deng Xiaoping. We might have also revered, had we known more about him, South Korea’s technocratic despot Park Chung-hee, who accomplished economic goals with the help of highly trained managers, and who also appeared to reduce inequality and build what we in India sorely lacked: social cohesion.

But little did I know that Hamilton (and List) would achieve their greatest influence in post-Mao China. “The rise of China resembles that of the United States a century ago,” the Chinese scholar Hu Angang writes. He is not exaggerating. Friedman may have been right that the Chinese Communists were hopelessly ignorant of how free markets work, but ending state intervention in the economy was never on the agenda. After Mao, Chinese leaders looked to Japanese and other East Asian developers, just as the East Asians had once looked to Germany.

The first investments in China in the 1980s came from Japan as well as from transnational Chinese business networks based in East Asia. China benefited from the market networks, management and technical know-how that accompanied these investments. Encouraged by the Clinton administration, it entered the World Trade Organization in 2001 and quickly seized the opportunity — limitless export markets — opened by American insistence on free trade.

Once Japan became the leading investor in Asia, regional production chains began to link those countries with one another. As Korea, Hong Kong, Singapore and Taiwan moved up the technology and value chains, they invested in developing countries, like Vietnam and Indonesia. This process of regionalizing investment and production, which largely dispenses with Europe and America, has now been accelerated by China’s rise as a manufacturing power. The biggest investor in Vietnam today, for instance, is South Korea, whose biggest trading partner is China.

The success of China’s state-led economy presents, in many ways, the same economic (and ideological) quandary that Japan unexpectedly threw up before the United States when, in the 1980s, it became the world’s leading creditor. A regional trading system dominated by China will make Asian countries less likely to enlist in American geopolitical objectives. Locked into boundary disputes with its neighbors, China has accelerated the militarization of the South China Sea, acquiring more than 3,200 acres of land on reefs and outcrops and installing runways, ports and hangars. But it has also abandoned its abrasive attitude, making determined efforts to pivot Asia away from Trump’s America. And it seems to be succeeding.

With China offering generous infrastructure deals to the former American territory of the Philippines, President Rodrigo Duterte announced that “it is time to say goodbye” to the United States — previously he threatened to ride a jet ski to a Chinese man-made island in the South China Sea and plant his country’s flag there. Other rival claimants to parts of the South China Sea — Malaysia, Vietnam and Brunei — have also moved closer to Beijing since Trump’s election. Smaller countries like Cambodia and Laos now resemble Chinese client-states. China is also trying to repair long-strained relations with Japan by inviting investments by Japanese multinationals.

These attempts to win over major American allies in Asia complement Xi’s ambitious One Belt, One Road initiative, which aims to put China at the center of global affairs through a network of trade links and infrastructure projects stretching from Asia to the Middle East to Africa and Europe. Investing more than $1 trillion in more than 60 countries — ports in Pakistan and Sri Lanka, high-speed railways in East Africa, gas pipelines in Central Asia — the initiative can claim to be the largest overseas investment drive ever undertaken by a single country. The 11 European Union members and five non-E.U. Central and Eastern European countries that have joined the China-led political and commercial group called 16+1 have all signed major infrastructure deals with China, enhancing Beijing’s influence in the E.U. The remaining 11 members of the Trans-Pacific Partnership have gone ahead without the United States; they are expected to sign a final agreement in March.

By pulling out of the TPP and threatening trade sanctions, Trump encouraged Japan to seek a deal with Europe that shuts out the United States. Britain, another stalwart American ally, is considering joining the TPP. China, meanwhile, is hectically negotiating more than a dozen trade agreements in Asia while proposing its own alternative to the TPP, a trade agreement called the Regional Comprehensive Economic Partnership. China has also intensified efforts to build alternatives to such Western international institutions as the World Bank and the International Monetary Fund. In 2014, China inaugurated, against staunch American opposition, the Asian Infrastructure Investment Bank, whose members now include all Asian states except Japan.

There is little doubt that Beijing is presenting itself as a benign alternative to the United States. In a speech just before his second term as the party’s general secretary, Xi claimed that there were more takers internationally for Chinese “values.” China, he said, offers “a new option for other countries and nations who want to speed up their development while preserving their independence.”

It was always wildly optimistic to suppose that China would eventually be integrated into an American-dominated order and persuaded, if not forced, to adopt its norms. A postcolonial Indian like myself, who traveled to China and read in its modern history and literature over the last decade and half, could only be skeptical of such claims. It was never less than clear to me, whether in the suburbs of Lhasa, Tibet (demographically altered by Han immigration), or in the bookstores of Shanghai (stacked with best sellers with titles like “China Can Say No”), that the quest for national sovereignty and regained strength defines China’s party state and its economic policies.

Belying predictions of doom, China has again demonstrated the power of what Dower, speaking of Japan, called “national pride — acute, wounded, wedded to a profound sense of vulnerability.” The United States never knew this single-minded ambition of the historical loser to avenge his losses; American leaders now reckon with it at home, in the wake of a nationalistic backlash against free trade and globalization. Some confused policies and mixed signals have accordingly defined the American position on China. During the American presidential campaign in 2016, all the main candidates, Bernie Sanders and Hillary Clinton as well as Trump, opposed the TPP, which was intended to contain China in its own region. Then, in Trump’s chaotic first year, the United States seemed to be forced back by Hamilton’s shrewd East Asian disciples into its historical role as the mother country of protectionism. Trump now says that America first does not mean America alone, and he is open to rejoining the TPP. There may be more such reversals ahead. For Trump is only just beginning to acknowledge, after a year of bluster, the formidable challenge of China and the arduous effort needed for the United States to match its most determined and resourceful rival yet.

Decoding what the Trump administration wants on trade

Donald Trump’s “America First” agenda will shrink the US trade deficit and overturn “decades of unfair trade deals that sacrificed our prosperity and shipped away our companies,” the president promised at last week’s State of the Union address.


But translating that rhetoric into concrete trade policy is a thorny task for Trump’s top advisors, who were welcomed at the recent World Economic Forum in Davos for clues to Trump’s administration really wants, and how it plans to manage the world’s biggest economy. Quartz found their public statements left more questions than answers.

The administration maintains its perplexing focus on trade deficits

The administration’s focus on the US trade deficit, which Trump has called “disastrous,” continues to perplex outsiders.

Richard Baldwin, a professor at the Graduate Institute in Geneva and president of the Centre for Economic Policy Research, described his conversation with US trade representative Robert Lighthizer to Quartz: Lighthizer described the US trade deficit as a sign that the world’s most open economy is being taken advantage of. “That is like trying to gauge whether your broken leg is getting better by asking yourself if you still have a headache—they are not related,” Baldwin adds.

“A trade deficit means you are consuming and investing more than you’re producing,” he said. “There is nothing you can do to rebalance that unless you bring your production and your consumption more into line.” The gap between what the US imports and what it exports jumped 12% in 2017, the Commerce Department reported on Feb. 6, as the annual trade deficit hit $566 billion, the highest figure since 2008.

One way to try to rebalance the trade deficit could be raising exports of liquified natural gas, or LNG, which Ross championed during Davos panels, touting the administration’s rollback of the “regulatory burden to the energy sector” that made this possible. Exporting the equivalent of one million barrels a day of petro-carbon products could shift the trade deficit by $50 million a day, he told reporters.

The US is holding WTO hostage—but for what?

“We do think that somebody needs to be the rule-maker or arbiter of global trade,” US commerce secretary Wilbur Ross said during a panel at Davos. Traditionally, that rule maker is the World Trade Organization (WTO). But at NAFTA talks in Montreal on Jan. 29, Lighthizer threw doubt on the future of the organization, asking, “What sovereign nation would trust to arbitrators or the flip of a coin their entire defense against unfair trade?”

The White House worries that the 164-country organization is “making law where it wasn’t intended to,” said Tim Brightbill, an international trade law specialist and partner with Wiley Rein, who has represented the US solar manufacturing industry in several recent high-profile trade cases.

In an apparent strategy to gain leverage to change the WTO, the Trump administration is currently blocking the appointment of new judges.This knee-caps the agency’s ability to settle trade disputes.

The approach seems to be “if we create uncertainly than everyone will panic and give us what we want,” says Simon Lester, a trade policy specialist with the Cato Institute. But while the White House figures out what it wants from the WTO, the repercussions can be felt worldwide. “The dispute settlement system is the one part of the WTO that still functions,” Lester said.

Negotiations have proved impossible because the WTO’s members can’t come to a consensus, adds Brightbill, so “the dispute settlement process is increasingly resolving what should have been resolved through negotiations.” Blocking judges in the appeals court means the system just breaks down. In the worst case scenario, without a functioning WTO individual countries could start taking decisions into their own hands, and applying, say, 100% tariffs to trading partners they were battling with.

The US needs new bilateral partners

Trump’s trade policy is based on righting a perceived imbalance between other nations and the US. As an example of how the US is disadvantaged, the Ross cited auto import tariffs between nations, with the US charging a measly 2.5%, and countries like China as much as 25%. Fixing the problem would require new bilateral trade agreements with individual countries or regions, a solution that fits well with Trump’s stated goal crafting new “America First” trade deals.

But crafting such agreements takes a long time—probably two years, minimum, according to Lester, when everything from tariffs to intellectual property to state subsidies are factored in. The US said in August that NAFTA renegotiations would be finished by the end of the year, he points out.

“You can’t negotiate sector by sector,” said Lester. “You can go to the EU or China and negotiate a comprehensive trade agreement,” and within that agreement set ranges for import duties on sectors like cars. Right now the US doesn’t have a Free Trade Area or Customs Union agreement with Europe, or Japan, or China, or New Zealand, he noted.

The Transpacific Partnership would have created US trading partners from over a dozen countries at one point. Expect the Trump White House to start new bilateral trade deals with a handful of countries—but don’t expect those to have a quick impact on deficit.

China is the new Japan

In his speech to the World Economic Forum, Trump took aim at China without mentioning the country by name. “The United States will no longer turn a blind eye to unfair economic practices, including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning,” he said.

Trump’s pugilistic attitude towards China is comparable to the George H.W. Bush White House in the 1990s, says Baldwin, who served that White House as an economic advisor. Then, the US and Japan were butting heads over trade, he recalls. The present day situation is “the same level of nationalism and antipathy against a particular nation, [but] this time it’s China.”

The US’s trade deficit with China jumped 8.1% in 2017, to hit a record $375.2 billion, and Trump’s trade advisors have already taken what action they can for now: The Department of Commerce recommended in mid-January that Trump raise tariffs against steel and aluminum imports, in what’s known as a Section 232 investigation. And last August the US trade representative’s office (USTR) opened a so-called Section 301 investigation against China’s intellectual property theft.

One hurdle to the US forming a sophisticated, coherent China trade policy is the fact that the USTR office is still understaffed at the top levels, missing deputies and a chief negotiator on agriculture and intellectual property.

And whether the White House actually acts against China, though, is now at the discretion of the president, who values his relationship with Chinese president Xi Jinping, even as he criticizes Beijing‘s actions on Twitter.

Here too, global trade experts are looking for more clarity. “Do you want them to privatize their companies, or propose some constraints on their behavior?,” said Lester. “Whatever it is, spell it out,” he said.

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Canadian Corp Uses NAFTA To Threaten Proposed Protection For Puget Sound

Cooke Aquaculture, a Canadian fish farm corporation, explicitly threatened to use the North American Free Trade Agreement (NAFTA) to sue the U.S. government in a private tribunal if lawmakers in Washington state enact a proposed ban on the farming of Atlantic salmon, an invasive species, in the state’s waters.

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Earlier this week, reports indicated that Canada may propose the elimination of ISDS in ongoing talks between Canada, Mexico, and the U.S. to renegotiate NAFTA. The provision, as it is currently written, allows corporations to sue countries for any anticipated financial losses as a result of rules and laws passed to protect communities and the environment.

In response, Sierra Club Responsible Trade Program Director Ben Beachy released the following statement:

“Once again, a corporation is using NAFTA to openly threaten lawmakers because the well-being of a community and its ecosystem is being put first. The corporate protections at the heart of NAFTA — including ISDS — must go. Communities should have the power to protect their air, water, and livelihoods without fear of being sued in undemocratic tribunals by multinational corporations.

“We hope Canada heeds the tireless calls of communities across North America to completely remove ISDS and other corporate handouts from NAFTA. This would be an important step, but only the first step. To produce a deal that benefits our communities, NAFTA’s protections for corporations must be replaced with binding protections for workers and the environment.”

Since NAFTA, food imports from Mexico and Canada have surged 194 percent, overwhelming border food inspectors. NAFTA also explicitly limited border food safety inspection and required us to accept food imports that do not meet U.S. safety standards. This most impacts communities with the least food security.

NAFTA required us to allow meat and poultry imports from Mexico and Canada if their safety regimes were deemed “equivalent” to our own, even if core aspects of our food safety requirements were not met. Before NAFTA, only meat and poultry from processing plants in Canada and Mexico that met U.S. safety and quality standards – and that were certified as doing so by U.S inspectors – could be sold here. NAFTA not only required us to allow imports produced under the other countries’ differing standards, but required us to accept meat from any processing plant in Mexico and Canada that was certified as complying with those countries’ domestic standards.

Effectively this required us to outsource our food inspection to the other countries. Even after infrequent U.S. Department of Agriculture (USDA) spot checks of a sample of Canadian and Mexican processing plants found major health threats, their safety regimes were still deemed “equivalent” to U.S. standards.

And, U.S. consumers are eating increasing quantities of meat imported from Mexico and Canada. For instance, combined U.S. beef imports from both countries have risen 133 percent since NAFTA took effect. But the USDA only physically inspects 6.7 percent of beef, pork and chicken imports. The Food and Drug Administration (FDA) only physically inspects about 1 percent of the food imports that it regulates (vegetables, fruit, seafood, grains, dairy and animal feed) at the border.

A U.S. food safety rule on pesticides, labeling or additives that is higher than international standards can be subject to challenge as an “illegal trade barrier.” The United States could be required to eliminate these rules and allow in the unsafe food or face millions of dollars in trade sanctions annually until we comply.

Under NAFTA, food labels can also be challenged as “trade barriers.” This isn’t just hypothetical: Canada and Mexico sued the United States under World Trade Organization rules over our country-of-origin labeling of beef and pork – and the United States lost! In order to avoid more than $1 billion in annual sanctions, Congress repealed the popular consumer law. And, under NAFTA, a foreign meat processing or food corporation operating within the United States could directly challenge our policies that they claim undermine their expectations.

Trade deficit hits highest level since 2008

The U.S. trade deficit surged to its highest level since 2008 during President Trump’s first year in office despite his vow to lower the gap and crack down on unfair competition.


The nation’s trade gap in goods and services jumped 12.1 percent to $566 billion in 2017, up $61.2 billion from 2016, the highest level since the deficit hit $708.7 billion in 2008, the Commerce Department said Tuesday.

For the year, imports surged to $2.9 trillion, easily eclipsing the $2.3 trillion in U.S. exports.

Notably, the U.S. deficit in goods soared last year to a record-high $375.2 billion with China, a nation that Trump has both demonized and praised on trade during his tenure.

Trade gaps also increased with Mexico and Canada while the two nations continue working with the United States to update the North American Free Trade Agreement.

For December, the trade deficit increased to $53.1 billion, up from $50.4 billion in November, which was the highest level since October 2008.

Throughout his campaign and time in office, Trump has said he would wipe out deficits created by what he calls America’s bad trade deals. He has vowed to remake the nation’s trade policy to shift the biggest benefits to the United States.

“Right now, the same trade policy that Trump attacked ferociously and promised to speedily replace is still in place,” said Lori Wallach, head of Public Citizen’s Global Trade Watch.

“So far, the administration has not implemented the comprehensive new approach to our China trade policy that is needed,” she said.

Recently, Trump levied steep tariffs on imported solar panel technology and washing machines, which immediately boosted prices for U.S. consumers.

Alliance for American Manufacturing President Scott Paul said he shares Trump’s “disdain for trade deficits,” adding, “I can’t imagine the record goods deficit with China in 2017 is anything he’ll be crowing about.”

“But he can and certainly should do something about it,” Paul said.

The president has to decide in the next couple months whether he will act on steel and aluminum case reports on his desk that argue for higher tariffs based on national security concerns, a move the U.S. has rarely used because of risks that U.S. exports could be hit with tariffs from other nations in retaliation.

Despite his fiery rhetoric against trade, the Trump administration made few inroads on trade policy outside of slapping higher tariffs on what they consider offending products coming in from nations such as China and Canada.

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Montreal Round of NAFTA Negotiations Threatens Health, Family Farms and the Environment

WASHINGTON – The latest round of secret negotiations on a new North American Free Trade Agreement (NAFTA) concludes today in Montreal. Central topics of discussion among negotiators from Canada, Mexico and the United States this past week have been provisions rolling back food safety, chemical and pesticide regulations governing agricultural products, according to Politico.


Bill Waren, senior trade analyst at Friends of the Earth, has released a new analysis focused on trade implications for agriculture and food policy.

Bill also issued the following statement:

The decision to continue talking on NAFTA is bad news for our environment. While trade ministers make secret deals, we can be assured what they see as progress will no doubt put our environment and public health at risk.

Family farmers in the U.S., Canada and Mexico are threatened by NAFTA renegotiation. A renegotiated NAFTA promises more commodity speculation, more corporate price gouging of family farmers and consumers and more environmental destruction in rural North America. It is also clear that NAFTA renegotiation threatens environmental protections across the board, particularly in connection with food safety and regulations related to dangerous chemicals and pesticides.

No NAFTA would be better than Trump’s NAFTA.

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Trump’s trade chief clashes with Canada, Mexico in NAFTA talks

MONTREAL — The high-stakes NAFTA talks appear to be finally headed on a slow-but-steady forward course, but negotiators remain under pressure to deliver quick results to alleviate the threat of President Donald Trump withdrawing from the pact.

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“We believe that some progress was made,” U.S. Trade Representative Robert Lighthizer said Monday during a closing press conference. “We finally began to discuss some of the core issues, so this round was a step forward — but we are progressing very slowly. We owe it to our citizens, who are operating in a state of uncertainty, to move much faster.”

Lighthizer, however, publicly chastised Canada, America’s largest trading partner, over filing trade complaints against the U.S. in the international arena. He also called on Canada and Mexico to dig even deeper to produce “major breakthroughs” before negotiators reconvene in Mexico City in late February for the seventh round of talks on revamping the 24-year-old pact.

There is still a very real possibility that Trump could withdraw from the pact unless Canada and Mexico agree to changes to make it better for the United States, despite efforts by the farm and the business community and members of Congress to change his mind about that, he said. In several recent speeches, including last week at Davos, Switzerland, Trump said that he supported free trade but that it must be “fair.”

“I don’t think the president’s view has changed at all. His view is if we can get a good agreement, we should have one,” Lighthizer said, adding that the existing pact is “really not a good agreement for the United States.”

Lighthizer, a blunt-speaking lawyer who denied reports he engages in “vulgar” behavior to keep opponents off-guard, said Canada deserved some credit for offering new ideas to break the logjam in one of the most difficult areas of the negotiations.

But he also complained a proposal for measuring the amount of U.S., Mexican and Canadian content in automobiles — the so-called rules of origin language — was enormously vague and asserted that it could pave the way for more Chinese or other foreign parts used in North America-made cars, rather than less.

Canada’s informal counterproposal attempted to cater to Washington’s demand that the level required in order for an automobile to qualify for reduced duties under the agreement be raised to 85 percent, from its current 62.5 percent.

Lighthizer blasted it as “the opposite of what we are trying to do,” but Canadian officials took comfort in the fact he said the United States would continue to discuss it.

Canada and Mexico came into the latest round under pressure to engage more seriously, in Washington’s view, on a number of U.S. controversial demands, such as significantly tightening the auto rules of origin in a bid to boost U.S. manufacturing.

Lighthizer’s tough talk also targeted a case Canada recently launched at the World Trade Organization, which he called “a massive attack on all of our trade laws.”

“Of course, we view this case as frivolous, but it does make one wonder if all parties are truly committed to mutually beneficial trade,” he said.

Canadian Foreign Minister Chrystia Freeland, a former journalist under pressure to stand firm against U.S. proposals for radically changing the pact, said she was “pleased” with progress made this week.

“There is still a significant gap on a number of issues, and we are going to be working extremely hard, extremely energetically with our two partners to try to close those gaps,” she said at an individual press briefing.

Freeland rebutted Lighthizer’s complaints about Canada’s informal auto proposal by noting it had been welcomed by auto companies on both sides of the U.S.-Canadian border.

“This includes ideas to update NAFTA’s rules of origin for autos in ways that would draw new investment to the North American industry — fostering value-added R.&D. jobs, next-generation autonomous and electric cars and North American steel and aluminum production,” she said.

Freeland said the task of renegotiating NAFTA should not cause “the dismantling of cross-border supply chains that have made our auto industry the envy of the world.”

She continued to blast the initial U.S. proposals on rules of origin and other issues as unconventional.

“We should be clear about this: These proposals are unprecedented and in some ways represent an approach quite different from any Canada has encountered before, as a trading nation,” she said.

Mexican Economy Secretary Ildefonso Guajardo, who spoke first at the joint press conference at the end of the round, said the negotiations are at a “better moment” after this round of talks.

“Progress was achieved in several areas of the negotiation, especially in the chapters that aim to modernize NAFTA,” Guajardo said in his statement.

The Mexican trade official highlighted that a new anti-corruption chapter was closed in Montreal. Negotiators also completed work on language for an annex oninformation and communication technology. They were close to finishing negotiations on annexes for chemicals and pharmaceuticals.

Guajardo said chapters on telecommunications, digital trade and food safety measures are about 90 percent complete and there would be an effort to close them at the next round in Mexico City.

He added that Mexico recognized “the effort put forth by Canada in presenting creative ideas on some of the most important issues of the negotiation.”

“Mexico is committed to intensifying our engagement and will continue working constructively to solve the pending issues,” he said.

 The three countries have an informal deadline of finishing by March 31, but many in the trade and business sectors believe that the talks could stretch on for months — even extending into 2019. In particular, the pace could slow as the calendar gets closer to Mexico’s presidential elections on July 1 and the U.S. midterm elections in November.

It’s hard to predict how much longer the negotiations will take, but at least Canada and Mexico are “starting to realize that we have to begin to talk,” Lighthizer said. “I think that’s a reason for guarded optimism, but you know I’m never really very optimistic.”

Rep. Dave Reichert, a Republican lawmaker in town to monitor the talks, told reporters on Sunday that Lighthizer describes himself as “a curmudgeon. So when he shows optimism it may not be readily visible to the rest of us.”

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Republicans seek to tame Trump on trade

GOP senators are urging the president to preserve NAFTA — and hope to get some assurances at the State of the Union.


Forget the stalemate over immigration and spending. Right now, Republicans are most worried about President Donald Trump’s trade policy.

Fresh off new tariffs aimed at imported washing machines and solar panels, GOP lawmakers fear a round of tariffs targeting steel and aluminum — or worst of all: a sustained attack on NAFTA and dissolution of the trade agreement entirely. Trump’s populist trade policies dominated the Senate GOP’s strategy sessions last week, privately eliciting handwringing from the party’s large bloc of free traders, according to GOP sources familiar with the matter.

As the White House teases a conciliatory approach for Trump’s first State of the Union, Republicans hope he also will offer them an olive branch on one of the most yawning divides between the president and his party.

“That would be welcome,” said Senate Majority Whip John Cornyn of Texas, whose state is a key beneficiary of the North American Free Trade Agreement. “I don’t want us to shoot ourselves in the foot by terminating NAFTA or creating anxiety where it’s not necessary.”

While most Republicans have fallen in line behind a president they largely did not support in the 2016 presidential primary, many in the GOP are still comfortable taking on Trump when their states’ interests are jeopardized. Senate Republicans are now circulating a letter addressed to the president asking him to preserve NAFTA, according to GOP officials on Capitol Hill.

It’s a pointed example of the party’s lingering divisions under Trump — on an issue where there may be significant action amid an otherwise unproductive legislative year. And it’s a reminder that on trade, Trump can largely do what he wants through the executive branch with little recourse from Congress.

“I’ve encouraged him to think of it in terms of modernizing NAFTA, not ending NAFTA,” Cornyn said. “A lot of members in our conference and on both sides of the aisle are trying to encourage the president to think in those terms.”

The GOP has long been a party of free traders. During the past two years of President Barack Obama’s presidency, Senate Republicans labored to pass a bill giving him the ability to quickly negotiate new trade deals. Now they have a president of their own party who prefers to scrap trade deals and slap tariffs on other nations.

Senate Finance Chairman Orrin Hatch (R-Utah), who led the fight to give Obama so-called Trade Promotion Authority, said he wants to hear Trump “extrapolate” concrete policies, because “right now they’re just suggestions.”

“I’m not uncomfortable. But I’m not comfortable either,” Hatch said of Trump’s trade stance. “I’m a free-trade guy. And I believe that this ought to be a free-trade country, especially when it comes to NAFTA and our hemisphere.”

Republican sources said GOP senators’ disagreements with Trump on trade surface far more often in party lunches than what the president said on Twitter or the chaotic story of the day from within the White House. Senators will often wait to complain about Trump’s policies until Tuesdays, when Vice President Mike Pence often visits the GOP lunch, hoping that bending Pence’s ear will help moderate Trump.

And in some cases, Trump has listened. His decision to impose tariffs on solar panels wasn’t as severe as some senators had feared. And Trump opened the door last week to re-engaging on the Trans-Pacific Partnership, a massive deal negotiated by Obama with Pacific Rim countries that Trump rejected shortly after taking office. The Trump administration has also sought to soothe some senators over NAFTA in recent weeks, according to GOP senators.

But some are still wary that Trump’s policies in general, like new potential tariffs on steel and aluminum, could lead to major pain in rural America and states that rely on agriculture.

“Trade is necessary for agriculture. And I do worry that putting on tariffs on these goods, that agriculture will be hit in retribution by other countries,” said Sen. Joni Ernst (R-Iowa). “And it is easy to hit ag.”

In Ohio, however, Trump’s trade actions cut a different way: The state’s manufacturers have been struggling to compete with cheap washing machines produced in Asian countries.

“He’s on the right track in some regards, like trying to ensure we’re having a level playing field. That’s why I supported the washing machine case,” said Sen. Rob Portman (R-Ohio), a former U.S. trade representative. “The concern I have is not so much those level-the-playing-field actions, as the trade agreements.”

The biggest fear is Trump will follow through on his long-held threat to scuttle NAFTA, which could dramatically reshape the global economy and disrupt a number of conservative states that sell goods across North America borders. Many lawmakers believe they would have little ability to stop Trump if he decided to dissolve the trade pact, so they are pressing for Trump to work on improving NAFTA rather than kill it.

“Any agreement that’s as old as NAFTA could be modernized or updated. But it’s fundamentally sound policy, and a majority of our members believe we need to make it clear we’re committed to it,” said Sen. Thom Tillis (R-N.C.).

Some Republicans said privately they are confident Trump won’t actually pull out of the agreement and is using his threats as a negotiating tactic. Others said they trust his instincts when it comes to forging economic deals.

“He’s a negotiator and he approaches things a little bit different than most people,” Hatch said. “Often he’s right.”

For Trump, the first step would be to formally notify Canada and Mexico of his intent to withdraw. Such an action would start a six-month clock, at the end of which he could terminate the agreement if he wanted to — though he wouldn’t have to.

Some lawmakers said they believe Congress could stop him from withdrawing after the six-month clock expired, but worry that Mexico and Canada would use that time to begin forging new trade agreements with other countries. Plus it would provoke an ugly intraparty feud that would distract from all other issues.

Most Republicans would rather just hear Trump say during the State of the Union that he’s keeping NAFTA but working to improve it, rather than entertain doomsday scenarios.

Sen. Roy Blunt (R-Mo.) said he is hoping Trump reprises on Tuesday a recent speech he made in Tennessee, where he said he was looking for “fair and reciprocal” trade deals and wants to improve NAFTA. Blunt said those comments were “pretty good.”

But, he added: “A lot of the other comments I’m not so happy with.”

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Trump’s State of the Union had basically nothing to match his promises on trade

He was surprisingly silent on issues like NAFTA and China’s trade cheating.


On his path to the White House, Donald Trump made transforming the way the US does trade with the world one of his biggest policy priorities.

But in his first State of the Union address, he had remarkably little to say about his record on the issue during his first year in office — or his future vision for trade policy.

Trump offered plenty of lofty rhetoric about how under his watch the US would no longer put up with unfair trade deals. “The era of economic surrender is totally over,” he declared. “From now on, we expect trading relationships to be fair and, very importantly, reciprocal.”

But when it came to actually explaining how his new era had begun or what it might look like in the coming years, he declined to offer any specifics.

“We will work to fix bad trade deals and negotiate new ones. And they will be good ones. But they will be fair,” he said in one of just a few characteristically vague sentences on the issue in his speech.

Trump didn’t mention ongoing negotiations over NAFTA; his decision to reopen talks over the US-South Korean trade agreement known as KORUS; the impact of leaving the Trans-Pacific Partnership; or his stance on the World Trade Organization. Nor did he name specific countries that he thinks are trade cheaters that deserve to be punished for taking advantage of the US.

Chad Bown, a trade expert at the Peterson Institute for International Economics, told me he found it surprising that Trump used such vague language to discuss trade, especially when it comes to China policy.

“The Trump administration’s strategy to deal with the serious challenges posed by China remains entirely unclear,” Bown said.

Trump has promised a lot more than he’s delivered on China so far

On the campaign trail, Trump promised to avenge China’s “rape” of the US economy and its “theft” of coveted manufacturing jobs from the American heartland. He pledged to punish China for devaluing its currency to give itself a special advantage in global trade. And he threatened to impose enormous 45 percent tariffs on goods from China to protect American industry from competition.

But after he took office, none of that happened. Trump reversed his position on blacklisting China as a currency manipulator and failed to issue any big tariffs.

Earlier in January, he did make his first more aggressive move toward Beijing by issuing 30 percent tariffs on imported solar panels, which China produces more of than any other country in the world.

But there are still more questions than answers regarding how Trump intends to fulfill threats he’s made against Chinese steel and aluminum imports. Perhaps most importantly, it remains to be seen how he decides to deal with China’s practice of forcing US companies to hand over their most prized technology in exchange for access to China’s market.

Experts widely expect any major steps Trump takes against Beijing to be reciprocated, and believe that a trade war could unfold as the countries get locked in a tit-for-tat against each other’s economies.

A number of trade watchers expected the president to roll out some major announcements on how he was going to get tough with China during this speech. But Trump instead opted to go with vague rhetoric and leave questions of how he might handle some of his most controversial economic policy to the public’s imagination.

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