Inertia Wins!

This is a joint statement from Iain Murray and me, originally posted at CEI.org.

The Competitive Enterprise Institute (CEI) today announced its opposition to the USMCA agreement between the United States, Mexico, and Canada.

Statement by CEI Vice President for Strategy Iain Murray and senior fellow Ryan Young:

“While USMCA is not that different from NAFTA, its trade-unrelated provisions and political giveaways set precedents that could harm future trade agreements for decades to come. USMCA’s acronym, which scraps NAFTA’s “F” and “T” standing for “Free Trade,” is more telling than its drafters likely intended.”

Murray and Young make the points that trade negotiations should:

• Free trade, not manage it.
• Set economic precedents, not political ones.
• Allow countries to compete with one another on setting least-onerous regulations, not standardize a one-size-fits-all regulatory regime for all countries.
• Focus on trade, not include more than 2,000 pages of campaign bragging points and payoffs to political constituencies.

Unfortunately, the USMCA:

• Preserves NAFTA’s near-zero tariffs between its members but raises several non-tariff barriers, from export quotas to sourcing requirements to monetary policy.
• Is filled with trade-unrelated provisions that do not belong in a trade agreement. Energy and environmental provisions will narrowly benefit politically connected companies and activists but raise consumer prices and reduce their choices. Regulatory obstacles for automobile parts will dismantle supply chains that have taken decades to build and make new cars even more expensive. Labor provisions, aimed at buying union political support, that will reduce access to Mexican products for U.S. producers and consumers.
• Will influence how upcoming agreements are made with China, the United Kingdom, and the European Union.

CEI opposed the original NAFTA because its non-tariff barriers and trade-unrelated provisions could become entrenched in future trade agreements – fears that proved well-founded.

Related analysis:

Traders of the Lost Ark

The Ideal U.S.-U.K Free Trade Agreement

This press release was originally posted at CEI.org.

Today, the White House and House Democrats have reportedly reached a deal on terms for a trade deal between the U.S., Mexico, and Canada. But CEI Senior Fellow Ryan Young remains underwhelmed:

“If the deal announced today holds and the revised NAFTA/USMCA passes, its economic impact will be almost too small to measure. But compared to likely alternative policies from the Trump administration, ‘nothing’ is almost certainly better than ‘something’.

“The USMCA leaves intact NAFTA’s biggest achievement—near-zero tariffs between Canada, Mexico, and the United States. On the negative side, USMCA would increase car prices for consumers, add to regulatory complexity, and interfere with international supply chains. On the plus side, more than half of USMCA’s language is taken verbatim from the Trans-Pacific Partnership (TPP) that the Trump administration withdrew from on its third day in office. The USMCA’s policy stakes are very small. But in terms of damage control, it is potentially very large.”

CEI Vice President for Strategy Iain Murray states:

“Passing USMCA will be a Band Aid on the self-inflicted wound of the global trade war. The administration’s trade policies have raised prices for consumers and cost jobs in the heartland. Without them, the jobs, wages, and growth numbers the President celebrates would be a lot better. It’s only because a lot of tariffs have been delayed that consumers aren’t facing huge price rises this Holiday gift-buying season. USMCA goes a small way to fixing these problems but Congress needs to reclaim trade powers it has delegated to the executive. It should also demand the President works with the WTO in solving the world’s trade woes and punishing bad actors rather than treating it as part of the problem.”

Related analysis:

• Common Myths and Facts about Trade
• Traders of the Lost Ark