Trump, Trade and Tantrums
MEXICO
CITY — Everyone here wants to know what’s going to happen to Nafta —
the North American Free Trade Agreement, which has closely linked the
economies of Mexico, Canada and the United States for more than two
decades. Donald Trump has described Nafta as the “worst trade deal ever
made.” But will he actually destroy it?
Until
just a few days ago I was pretty sure that he wouldn’t. My guess was
that he would negotiate some minor changes to the agreement, declare
victory and move on. Markets seemed to agree: The Mexican peso plunged after Trump’s election but then rebounded, effectively reaching the verdict that nothing terrible would happen.
But
I’ve been revising that view in light of recent events — especially
Trump’s health care temper tantrum. Breaking up Nafta would be terrible
for Mexico and bad for the U.S. It would horrify major U.S. business
interests, which have spent two decades building their competitive
strategies around an integrated North American market. But it might be
good for Trump’s fragile ego. And that’s a reason to fear the worst.
Let’s start by admitting that Nafta, although it led to rapid growth in both Mexican exports to the U.S. and U.S. exports to Mexico, hasn’t lived up to the expectations of some of its proponents.
In
1994, when the agreement went into effect, many people hoped that it
would jump-start rapid growth in the Mexican economy; it didn’t. Some
proponents also argued that the United States would run large surpluses
in its trade with Mexico; in fact, after its 1995 financial crisis
Mexico began running surpluses instead.
Furthermore,
growing trade definitely hurt some U.S. workers. Some U.S. companies
laid off workers and moved production to Mexico (although others added
jobs to produce goods for Mexican markets, or gained a competitive
advantage from the ability to purchase components from Mexican
suppliers).
By
any measure, the costs inflicted by Nafta were far smaller than those
created by imports from China — and these in turn were far smaller than
those created by changing technology. For example, the decline in coal-mining employment — caused almost entirely by technological change — or the collapse in truckers’ wages
— reflecting deregulation and the collapse of union power — had nothing
to do with Nafta. Still, the trade deal caused some real pain.
But
admitting this unpleasant reality has almost no bearing on the question
of what to do now. Nafta’s disruptions are mostly in the rearview
mirror.
We
now live in a North American economy built around the reality of free
trade. In particular, U.S., Canadian and Mexican manufacturing are
deeply enmeshed with one another. Many industrial plants were built
precisely to take advantage of our economic integration, buying from or
selling to other industrial plants across the borders.
As
a result, breaking up or degrading Nafta would have the same disruptive
effects that came from Nafta’s creation: Plants would close, jobs would
disappear, communities would lose their livelihoods. And, yes, many
businesses, small, large and in some cases huge, would lose many
billions of dollars.
Oh,
and it’s not just manufacturing. What do you think would happen to the
farmers of Iowa if they lost one of the most important markets for their
corn?
So
what I and others have been assuming is that these realities would stay
Trump’s hand. No matter how ignorant he may be about the realities of
North American trade, we assumed that he would in the end balk at
alienating big businesses and big money.
But now I’m not so sure.
For one thing, Nafta negotiations are going very badly. America’s demands
— requiring renewal every five years, taking away the ability of
businesses to appeal government actions — would undermine the
predictability, the assurance of future market access, that was the
trade agreement’s main point.
Meanwhile, documents leaked to The Washington Post
show key administration advisers attributing virtually every social
ill, from spousal abuse to divorce, to the loss of manufacturing jobs —
and we know that the administration, wrongly, believes that trade
treaties are the cause of those job losses.
Most
important, look at what Trump has been doing with his open, indeed
gleeful sabotage of the U.S. health care system. Never mind the huge
human costs he’s imposing; he isn’t even following any plausible
political strategy, since he and his party are likely, with good reason,
to be blamed for the damage. Furthermore, his actions will cost big
businesses — insurers and health providers — billions; he’s even
boasting about how much he has hurt their stock prices.
So
we’ve now seen Trump deliberately hurt millions of people and inflict
billions of losses on a major industry out of sheer spite. If he’s
willing to do that on health care, why assume he won’t do the same thing
on international trade policy?
Nafta,
then, is at real risk. And if it does get destroyed, the only question
is whether the consequences will be ugly, or extremely ugly.
