U.S. lays out objectives for NAFTA renegotiations

Reporting from Washington —  The Trump administration on Monday unveiled its highly anticipated plans for renegotiating the North American Free Trade Agreement, explicitly stating that its key objective is to reduce the trade deficit with Canada and Mexico — an aim that most economists say is misguided as the focus of a trade policy.

The release of the administration’s bargaining objectives for NAFTA sets the stage for negotiators to begin talks as early as mid-August.

The 18-page document from the Office of the U.S. Trade Representative, or USTR, suggests that the Trump administration is seeking a comprehensive review and wide-ranging changes to the 23-year-old pact, with a new chapter on the digital economy and other provisions and rules to modernize NAFTA.

Much of the negotiating objectives are vaguely stated, likely reflecting the administration’s reluctance to make commitments that at this stage could make things more difficult politically and at the bargaining table.

The blueprint contained none of the harsh language or threats to pull out of NAFTA that marked Trump’s rhetoric during the campaign and into his presidency. Trump has repeatedly stated that he would terminate the agreement if it could not be significantly improved in favor of American interests.

In its NAFTA negotiating road map, the administration made clear it wanted to strengthen trade remedies to secure fairer and what it called “reciprocal” trade. The USTR said it would seek to eliminate a chapter in NAFTA that allows Canada and Mexico to challenge U.S. anti-dumping duties by turning to an independent panel of arbiters.

The Trump administration also said it planned to set up an “appropriate mechanism” to ensure countries avoid manipulating their exchange rate to gain an advantage on trade.

But the USTR largely papered over other contentious issues. For example, it indicated that the United States would seek to “update and strengthen” so-called rules of origin, which essentially set a limit on the value of non-North-American-made components that can go into goods and receive NAFTA’s duty-free treatment. But no quantitative target was specified, nor was there even a statement saying that U.S. negotiators would be looking to raise the local-content minimum.

On labor, the USTR said it would require NAFTA countries to adopt internationally accepted standards that call for the right to organize and abolish compulsory labor, as well as setting “acceptable” pay and work conditions, something many labor advocates have wanted, especially for Mexico.

“But what’s missing is the assurance of steps that must be taken for the rights to be real,” said Rep. Sander Levin (D-Mich.), the former ranking member of the House Ways and Means Committee.

Levin’s concerns were echoed by civil society groups and other Democratic lawmakers on other matters as well, including environmental rules and “Buy American” procurement policies.

“The document is quite vague, so while negotiations can start in 30 days, it’s unclear what will be demanded on key issues, whether improvements for working people could be in the offing or whether the worst aspects of the [Trans-Pacific Partnership] will be added, making NAFTA yet more damaging for working people,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. Trump formally withdrew from the Trans-Pacific Partnership, a 12-nation free trade deal that former President Obama had completed but that failed to win congressional backing.

The early criticisms of the USTR objectives point to the political battle ahead as Trump seeks to overhaul not only NAFTA but U.S. trade policy more generally.

The U.S. Chamber of Commerce issued a short statement after the release of the objectives, neither endorsing nor criticizing the overall plan. Many businesses have been worried about the possibility that Trump’s strident position on trade could lead to significant changes or even a dismantling of NAFTA that could undermine the gains over the last 23 years, and the sophisticated supply chains and operations that connect the three countries economically.

“We commend the administration’s recognition that we must do no harm to the American jobs, businesses and industries that depend on trade with Canada and Mexico,” the chamber said.

Canada and Mexico are the United States’ second and third top trading partners after China. Total U.S. trade — imports and exports — with Canada and Mexico has tripled from 1993, to $1.2 trillion in 2016.

But the U.S. trade deficit has increased significantly with Mexico over the last two decades. And with American manufacturers continuing to relocate there, Trump has seldom passed up the opportunity to trash NAFTA, repeatedly calling it a “disaster” and earlier this year saying he was close to withdrawing from the agreement.

Trump in particular has focused on the U.S. trade deficit with Mexico, which totaled $64 billion last year. The United States has trade deficits with practically every major country, and the president has made lowering and eliminating trade deficits his primary economic focus.

In a nod to Trump’s emphasis on that, the USTR said in releasing its objectives that this is the first time that it has included deficit reduction as a specific aim for NAFTA renegotiations. Most economists, however, say that the trade deficit reflects broader economic imbalances, specifically the gap between U.S. investment and savings, and that reducing the deficit may do little to bring back jobs to the United States.

“They’re really obsessed with bilateral trade deficits, and trade policy doesn’t really influence those bilateral trade deficits very significantly,” said Douglas Irwin, a trade expert at Dartmouth College. “Trade agreements determine the rules of trade but not the levels of trade and certainly don’t determine whether you have a surplus or deficit.”

What’s more, he said, the NAFTA objectives outlined Monday don’t say how the administration is going to reduce the deficit.

Trump is looking to renegotiate other trade agreements as well. Earlier this month, Robert Lighthizer, Trump’s U.S. trade representative, took the first step toward making changes in the free trade pact with South Korea, saying that the 5-year-old deal hasn’t turned out well for the United States. The trade deficit in goods with South Korea rose to $27.6 billion last year, up 33% from 2013.

“This [new NAFTA] agreement will be the template, the model for how the Trump administration will move forward on subsequent deals,” said Robert Holleyman, a former deputy U.S. trade representative in the Obama White House and now president of C&M International, a Washington consulting firm. “It will be the administration’s stamp on what it hopes for and what it wants to do on trade.”

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UPDATES:

10:10 a.m. July 18: This article was updated with a quote from a Dartmouth trade export.

This article was originally published at 5:50 p.m. July 17.