Guest Post by Professor Art Cyr, Carthage College
Just as September concluded, the United States reached a new trade agreement with Canada and Mexico, our partners in NAFTA (North America Free Trade Agreement). President Donald Trump made allegations of unfair economic practices directed at the U.S. a centerpiece of his presidential campaign, and vowed to bring changes.
The new deal has a new name, the United States-Canada-Mexico Agreement, or USMCA. Impacts on car and truck manufacturing are substantial, with stipulations that 75 percent of components must originate in North America, and a significant proportion of the workers paid at least $16 per hour starting in 2020. Otherwise, tariffs will trigger. Agriculture is another target, and Canada has made major concessions to open the domestic market to U.S. farmers.
NAFTA, in effect since 1994, is a formal treaty. Changing the terms requires approval by the three governments, including the U.S. Congress and legislatures in Canada and Mexico.
Moreover, manufactured goods such as vehicles are today truly global products. Corporations involved have the range and resources, in capital and labor, quickly to shift production and assembly locations to meet changing rules.
Agricultural interests in most countries have powerful political lobbies, and enjoy protection from competition. This includes the U.S. The fact that this sector is vexing is no surprise.
Since the Second World War, international agreements have facilitated investment and trade. The Kennedy Round, a comprehensive reduction in trade barriers completed in 1967, came after the limited Dillon Round of the Eisenhower administration.
The Tokyo Round in the 1970s and the Uruguay Round in the 1980s followed. The Uruguay Round, spearheaded by remarkably effective U.S. Trade Representative Clayton Yeutter, was a major success. The follow-on Doha Round, expanded to include developing nations, stalled because of complex agriculture issues.
The institutions overseeing international trade are durable. In 1944 at Bretton Woods New Hampshire, in the midst of global war, the Allies hammered out the post-war economic structure, to operate under the United Nations: the International Monetary Fund and the World Bank. The General Agreement on Tariffs and Trade (GATT), formed in 1948, became the World Trade Organization (WTO) in 1995.
Those leaders planned long-term.
Arthur I. Cyr is Director of the Clausen Center for World Business at Carthage College in Wisconsin and author of “After the Cold War.” Contact firstname.lastname@example.org