Wednesday 16 May 2018 - 09:27

NAFTA’s Fate Obscure as Trump’s Trade War Unfolds

Story Code : 725107
NAFTA’s Fate Obscure as Trump’s Trade War Unfolds
The chief executives of General Motors Co, Ford Motor Co, Fiat Chrysler Automobiles, along with senior U.S. executives from Toyota Motor Corp, Volkswagen AG, Hyundai Motor Co, Nissan Motor Co, Honda Motor Co, BMW AG and Daimler AG will meet Trump, along with the chief executives of two auto trade groups were invited by the White House for the meeting, the Reuters news agency reported.

“The two sides have discussed the fuel efficiency and pollution rules in the US. Obama rules, adopted in 2012, sought to double average fleet-wide vehicle fuel efficiency to about 50 miles (80 km) per gallon by 2025, but included an evaluation due by April 2018 to determine if the rules were appropriate,” Reuters reported. The evaluation will allow Trump to review the regulations to the advantage of the automakers.

But, on the opposite sides, Democrats and the environmental activists in California and 16 other states protested a government decision to relax the efficiency and environmental standards for the auto industry.

But Trump seems to be strongly standing on his word, saying that weaker rules will lead to cheaper cars, surge in sales, increased car industry employment, and improved vehicular safety as the move allows the consumers to faster replace their old cars with new ones.

Trump is powerfully implementing his “America First” policy in the car industry. He said that the US has huge vehicle imports, so he wants large numbers of them to be built inside the country. He named some ready-to-host-car-factories states such as Michigan, Ohio, Pennsylvania, as well as South and North Carolina.

The argument, however, was used by the president to attack the North Atlantic Free Trade Agreement (NAFTA), warning that if the other two signatories, Canada and Mexico, fail to agree with the US on “fair conditions” to realize Washington’s interest, he will scrap it.

NAFTA and Trump challenge

NAFTA, creating a trilateral trade bloc in North America, came into force in 1994, when the US was presided over by Bill Clinton. The agreement replaced a weaker US-Canada trade agreement reached two the years earlier. The accord was modulated to present a mechanism to eliminate the trade obstacles between the three countries through initiating a free trade zone, where there are no or lowest level export-import duties.

But the nearly two-decade-old pact is now facing a new challenge: Trump, who has been at the White House only a little more than a year, is fervently removing the US from the international and multi-sided pacts.

In mid-March this year, he protested “we have a large trade deficit” with Canada and Mexico, adding that the NAFTA, now under renegotiation for revamping, has been a very “bad deal” for the US. He noted that the agreement transferred many jobs and companies from the country to two partners. He maintained that Mexico and Canada can only escape the hard-hitting steel and aluminum tariffs if they make concessions in NAFTA case. He, furthermore, said that Canada mistreats the American farmers and needs to reconsider its behavior. The same warning was also laid at feet of Mexico over its drugs smuggling to the US.

“Canada must treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying,” Trump tweeted on March 5.

If the NAFTA talks fail to find a solution by the deadline July, odds are that the pact will face opposition also from the Andre Manuel Lopez Obrador of Mexico, an anti-globalization leftist and populist who is expected to win the presidential election set for July 1. He insists on renegotiation of the agreement.

US needs agreement

US Trade Representative Robert Lighthizer said if no agreement is reached, troubles could ensue. This is not a good news for some US states. The impasse, reports suggest, could destroy 950,000 jobs only in Texas which exports $112 billion worth of goods and services to Canada and Mexico annually.

NAFTA facilitated cheaper Mexican and Canadian exports to the US. But the US also is immensely benefiting. The country is receiving cheaper oil from Canada because of the deal.

Mexico is the biggest gas exports destination of the US. Only in 2016, the US gas exports to neighboring country touched $20.2 billion, the double of the Mexican energy export, $8.7 billion, to its partner. Department of Commerce says over 14,000 Pennsylvanian small and medium businesses, which create 190,000 jobs, rely on NAFTA.

Beside energy sector, others US economic areas gain from NAFTA. According to US Chamber of Commerce, about 14 million jobs in the country rely on trade with Canada and Mexico. It adds that about 5 million additional jobs were added in past years due to NAFTA trade despite the poor US economy’s performance. The Wall Street Journal in a report has put the US NAFTA pullout damages at some $50 billion a year.

Despite all of these expert warnings, rays of hope for a settlement are not in sight. The Mexican Secretary of Economy Ildefonso Guajardo on Friday told the media in Washington that the negotiators are pressing for a deal but the timeframe is inadequate to work out a fixing arrangement.

Since his assumption of power, Trump has embarked on mercantilist policies and waged trade wars against Washington’s business rivals and partners as part of a key strategy to boost the American economy. The $55.6 commerce gap is the main drive behind his threat to abandon NAFTA. Some analysts, however, do not rule out that Mexico resistance to paying for Trump’s proposed border wall construction with Mexico is an additional motivation behind the president’s antipathy to the tripartite trade pact.