Future of Globalization, Rethinking America

NAFTA and WTO: Terminator Trump?

U.S. trade policy under Trump does not reflect a self-confident global power, but a giant caught in a dwarf’s mind.

Credit: Gage Skidmore www.flickr.com

Takeaways


  • Once NAFTA has been terminated, as Trump seems keen on doing, the US may well opt out of the WTO.
  • Trump is relishing acting out the Terminator role. He is keen on "terminating" NAFTA, the mother of all regional free trade agreements.
  • After Trump walked away from the Paris climate change agreement and put the nuclear deal with Iran into serious doubt, the word of the US is not what it used to be.
  • While Western powers are still incredulous and hope for a political change in Washington that comes just-in-time, Asians are more skeptical.

Obviously jealous of Arnold Schwarzenegger and his muscular frame, President Trump is nevertheless relishing acting out the Terminator role. He is clearly keen on “terminating” NAFTA, the mother of all regional free trade agreements.

Concluded with great fanfare in 1993, the agreement was at the time the corner stone of an American grand design to put pressure on Europe. At the time, the Europeans were blocking progress in the GATT Uruguay Round negotiations.

The argument presented to Brussels and the other European capitals was clear enough: By creating a large free trade area in dynamically growing North America, the U.S. government wanted to incite fear in the Europeans that they would lose access to valuable markets unless they did agree to U.S. requests in the then GATT and conclude the round.

That was back in the days when U.S. trade negotiators were actually interested in using negotiating pressure and tactics in order to open markets for their exporters on a global scale.

No more constructiveness

Trump may claim the same goal, but his real goal is actually the opposite. The name of the game is now to close the U.S. market to foreign exports and to put an end to bilateral deficits.

After three rounds in the effort to renegotiate NAFTA, “progress” has been hailed only on insignificant chapters. The rubber finally hit the road this week, thanks to Robert Lighthizer, the current U.S. Trade Representative.

As a good Renfield to his master, he did everything he could to convince his Canadian and Mexican colleagues that they should walk out of the room.

Three poison pills

Lightizer presented three so-called “poison pills” that were not so much propositions as they were deliberate provocations:

1. The USTR wants to mandate 50 % U.S. content in automobiles. Of course, that runs totally counter to the letter and spirit of free trade. But it is a telling window into the Trump vision of what trade should be – essentially a Comecon light, only that it is now Washington rather than Moscow that decides which country makes what and where.

2. The USTR wants to include a sunset clause into the renegotiated NAFTA agreement. It is best understood as a Trump-style marriage clause where, after five years, both spouses, or rather the husband, can choose to stay in or leave.

That may work well in the world of billionaire nuptials, since both parties end up with a good bargain. The Trump lady gets a substantial alimony, the man a younger companion.

But this kind of arrangement does not work so well in the case of a trade agreement: Not only do businesses want certainty and continuity. In the Trump trade world, there are also no postpartum alimonies. It’s just exit – and over.

Prudent businesses would interpret such a sunset clause as an inducement to limit investment in Canada or Mexico already now.

3. The USTR wants a curious form of dispute settlement. A country should be able to reject any conclusion that it considers “clearly erroneous.” Read: Any conclusion that finds the U.S. at fault can be tossed out. It’s like tossing a coin: heads I win, tails you lose. See Moscow show trials.

Under those ominous circumstances, let’s give credit to the Canadians and Mexicans for stoically staying in the room.

To add insult to injury, they had to endure a lecture by the USTR about their resistance to change and their refusal to “give a little bit of candy.”

After all, we are not talking about candy here, but about a treaty and commitments not just concluded, but very much shaped by the United States a quarter century ago.

“Scrap of paper”

Come to think of it, Mr. Lighthizer, the U.S. Trade Representative, sounds a lot like the German chancellor Theobald von Bethmann-Hollweg talking about the infamous “scrap of paper” on August 4, 1914.

By that, the last German Emperor’s top political representative meant the treaty guaranteeing the neutrality of Belgium, over which the UK went to war in 1914.

Not that anybody should be surprised by Lighthizer’s raiding mindset. It is just more proof, after Trump’s walking away from the Paris climate change agreement and putting the nuclear deal with Iran into serious doubt, that the word of the United States of America is not what it used to be.

While Western powers are still incredulous and hope for a political change in Washington that comes just-in-time, Asians are far more skeptical. They have a very disciplined acting and systematically operating China right next to them.

Compared to that, the idea of relying on American “protection” seems ever more fanciful militarily and illusory economically.

Shortsighted America

Once NAFTA has been terminated, as Trump and his team seem keen on doing, the United States will quickly realize that it shot itself in the foot.

The average Mexican tariff is triple the U.S. tariff, and the meager U.S. 2.5% tariff on automobiles is not exactly a powerful deterrent.

But that won’t stop Washington either. The WTO is the next target in the Trumpistas’ crosshairs.

The USTR started the job already, announcing that there would not be any meaningful result for the ministerial meeting to be held in Buenos Aires in December 2017. It is also sabotaging the WTO appeals body in Geneva — by refusing the appointment of judges.

Those are not the tools of a self-confident global power, but those of a giant that is caught in a dwarf’s mind.

But the Trumpistas do not worry about that. They have their eyes on the ultimate prize. Sure enough, leaving the WTO will free the United States to raise tariffs to whatever level.

Smoot-Hawley, anyone?

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About Jean-Francois Boittin

Jean-Francois Boittin is a former French diplomat and Treasury official.

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