The North American Trade Compromise
The North American Free Trade Agreement established the largest free trade zone agreement and removed tariffs on foreign imports between Canada, The United States, and Mexico. The agreement is in the process of re-negotiation by President Donald Trump and his administration. Last year Trump shared his sentiment towards NAFTA via Twitter that it was the “worst trade deal ever made,” claiming that if he became president, he would negotiate a better deal for the American people. Trump’s administration considered a possible U. S. withdraw from NAFTA on Wednesday due to complications between Canada and America. However, both the presidents of Mexico and Canada asked for Trump to reconsider pulling out.
Trump’s renegotiated deal places new requirements on American Automotives increasing North American content of vehicle production from 62.5 percent to 75 percent; also ensures Mexican workers union representation and mandates that 40-45% of cars be made by workers who are paid a minimum wage of $16 per hour. Auto industries would benefit from an increased minimum wage mandate on car manufacturers because it would make the price of labor more competitive, and thereby supplement the dwindling American auto industry and providing a more steady income for Mexican auto workers. This restructuring of NAFTA takes away incentives for American business to outsource cheap labor to Mexico.
“[An] investigation,” The US. Commerce Department Secretary Wilbur Ross said, “will determine whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the U.S. threaten to impair the national security.” in a letter to Secretary of Defense James Mattis.
The NAFTA 2.0 between Mexico and the U.S. is being drafted with hopes that Canada will also sign on to make it a trilateral agreement. Discussions between Canada and the U.S. to renegotiation NAFTA continue on Wednesday in Washington. Both Prime Minister Justin Trudeau and President Trump agree going into the deal that no NAFTA is better than a bad NAFTA.
This possible NAFTA 2.0 without Canada would allow for Canadian tariffs on exports and U.S. imports, thereby hurting the global economy. Without a trade agreement in place, tariffs are likely to follow which causes companies to overcharge for imported goods, skyrocketing the original price by allocating the cost of tariffs to the consumer instead of the company. Governments should not claim that these tariffs are crucial to “national security” to justify additional unwelcomed tax to benefit declining blue-collar industries in America.
These tariffs have the potential to create more problems than solutions by starting a trade war increasing the price of the tariffed goods drastically; the U.S. is artificially inflating the automobile market for no reason which is forcing Americans to buy imported cars at an increased cost to the consumer. We have seen how a 25 percent steel tariff on China backfired causing the Chinese market to retaliate with 279 Chinese product tariffs on goods that U.S. business owners rely on to run and keep their businesses afloat now being threatened by U.S. foreign trade policy.
“It is unclear to us whether after completing a NAFTA the president or the administration might not then impose further auto tariffs and taxes on the industry,” Global Automakers President and CEO John Bozzella said.“which would make the benefits of NAFTA washed away.”
The “further auto tariffs and taxes” that Bozzella talks about can come for domestic or foreign transitional actors. The fear of a possible trade war puts stress on business owners, and consumers alike, who hold their money in the stock market are not sure if their investments are safe from tariffs and begin to stop investing in North American companies.
Canada and the United States must to put their nationalist attitude aside if we are going to come to a fair agreement that helps both countries citizens instead of its showcasing strength over foreign allies over who is going to win the trade policy. After all what is a trade without a little give and take, both leaders must realize that trade agreements require compromise and communication instead of threats to walk away from trade trade agreement.
