The US-Mexico Trade Understanding: What About Canada?

The US-Mexico Trade Understanding: What About Canada?

Last week, the United States and Canada failed to reach an agreement on the ongoing NAFTA 2.0 renegotiation. Going into last week it was widely expected that any NAFTA deal would need to be concluded by the end of August. Nevertheless, Canada and the United States resume talks this week.

Instead of closing the deal on a renewed trilateral treaty, President Donald Trump announced that he and his counterpart in Mexico, President Enrique Nieto, had reached an understanding for a new U.S Mexico trade pact. When asked if Canada would join the new pact, the president quipped, “We shall see”.

Canada has not yet joined the new pact. One of the key issues seem to be whether or not Chapter 19 of NAFTA international dispute resolution provisions would be eliminated. This week, Prime Minister Justin Trudeau told the CBC that Canada would insist on maintaining the international arbitration provision because President Trump “doesn’t always follow the rules”.

In the latest episode of the Urbane Cowboys podcast, we talk to Vance Ginn of the Texas Public Policy Foundation about the status of the ongoing NAFTA negotiations.  Ginn gives an update on the Nafta talks and makes the case for free trade. He explains the concepts of comparative advantage and breaks down the concept of a trade deficit.

Ironically, despite the President’s efforts to reduce the trade deficit  with recent tariffs on steel and aluminum as well as other Chinese products, the U.S. trade deficit has actually increased, not decreased.. This supports Scott Lincicome’s axiom that “Tariffs Not Only Impose Immense Economic Costs but Also Fail to Achieve Their Primary Policy Aims and Foster Political Dysfunction Along the Way”

It is unclear if Canada will remain in Nafta. But even if Canada stays, U.S. companies will continue to face uncertainty related to international trade. For instance, despite a recent indication that the United States and the EU were about to enter into a trade agreement with respect to automobiles, President Donald Trump recently rejected an offer by the EU to eliminate all tariffs on automobiles. Rejecting this offer of free trade, the president declared that this was “not good enough”. As he indicated, the European consumer has grown accustomed to buying European vehicles. This seems to undermine the argument that Donald Trump is a free trader at heart who is simply negotiating for a better free trade deal.

Listen to the full Urbane Cowboys Podcast:

Doug McCullough – Lone Star Policy Institute

Photo credit – Marian Vejcik – www.123rf.com