Congressional Democrats are threatening to derail the new U.S-Mexico-Canada Agreement (USMCA) trade deal that is supposed to replace the North America Free Trade Agreement (NAFTA), saying that enforcement of Mexican labor provisions in the deal are inadequate.
Under the new deal, Mexico would recognize the right of collective bargaining and all parties agreed that “40-45 percent of auto content be made by workers earning at least $16 per hour,” according to the U.S. Trade Representative. In 2016, average pay in Mexico for manufacturing was $3.91 an hour.
“No matter how good a deal looks on paper, it doesn’t mean much if you can’t make sure the other countries live up to their end of the bargain,” Sen. Ron Wyden (D-Oreg.) declared in February.
In the meantime, both Canada and now Senate Finance Committee Chairman Chuck Grassley (R-Iowa) are demanding that the 10 percent aluminum tariffs and 25 percent steel tariffs against Canada and Mexico, which were levied on national security grounds by the Trump administration in May 2018, be lowered as a condition for ratifying the agreement.
At first blush, the twin challenges appear to make ratification less likely, since both sets of demands by each party move in opposite directions. One side is calling for more trade enforcement of agreements, while the other calls for less.
The U.S. produces about 70 percent of the steel it uses, while Canada and Mexico comprise about 6 percent and 3 percent respectively of what we use, or 19 percent and 11 percent of imports, according to data compiled by the U.S. Commerce Department International Trade Administration
Canadian foreign minister Chrystia Freeland said in March, “The existence of these tariffs for many Canadians raises some serious questions about ratification… [The Canadian people] would be really troubled with moving forward with ratification while tariffs are still in place. For Canadians, that doesn’t make sense.”
In an oped to the Wall Street Journal published on April 28, Grassley declared, “If these tariffs aren’t lifted, USMCA is dead. There is no appetite in Congress to debate USMCA with these tariffs in place.”
But, without the tariffs, Americans for Limited Government President Rick Manning contended, U.S. security could be compromised, as well as trade enforcement. Grassley, who Americans for Limited Government named Senator of Year in 2018, did not acknowledge the national security rationale President Trump made for the steel and aluminum tariffs. Neither did Canada.
“Tariffs are instrumental in enforcing trade deals and in defending U.S. interests against dumping by other countries. In addition, China, taking advantage by flooding global markets with their steel and forcing prices down, necessitates the use of tariffs globally to stop its attempt to end U.S. high-end steel production capabilities that threatens U.S. security,” Manning said.
To be certain, the primary mechanism for enforcing USMCA or any trade agreement that lowers trade barriers is the threat that tariffs will go up if the deal is not adhered to.
For example, addressing Democratic objections to the plan, the U.S. does not control Mexico’s labor laws, and so if under the agreement the labor provisions are not followed, the punitive measure would have to be new tariffs on Mexico’s exports to the U.S. There is also adjudication via the International Trade Commission if products are being dumped here or other unfair trade practices occur in violation of the trade agreement. Much of that is already addressed by current U.S. law. What has made a difference frankly is President Trump who is willing to go after trade violators.
As for Canada’s and Grassley’s objections, the USMCA as negotiated did not address the steel and aluminum tariffs, instead focusing on other areas where agreement could be reached. The U.S. might have considered lowering the steel and aluminum tariffs on Canada and Mexico, but the question is in exchange for what? If Canada and Mexico had made concessions on steel and aluminum, they would have been included in the agreement. They weren’t. Canada and Mexico need to allay U.S. security concerns to upend the rationale for the steel and aluminum tariffs.
Canada, which is ignoring the national security rationale Trump laid out for the tariffs and now demanding that the steel and aluminum tariffs be lowered, amounts to changing the deal after the fact. Ratifying what was already agreed to is not a concession.
And without ratification by Congress of the USMCA, President Trump has threatened to leave NAFTA without an alternative.
On Dec. 1, 2018, Trump told reporters, “I’ll be terminating it within a relatively short period of time. We get rid of NAFTA. It’s been a disaster for the United States… And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well.”
That would require Trump to invoke Article 2205 of NAFTA, which states, “A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties.”
That’s the lay of the land. Democrats are pretending the issue is enforcement but, really, they don’t want to give Trump a legislative victory on trade prior to the 2020 elections, even if the new trade deal includes key concessions their own constituents have demanded for years. Besides the Mexican labor concessions outlined above, country of origin requirements are being increased to 75 percent, up from 62.5 percent, requiring automobiles will have at least three-quarters of their parts made in North America, and on currency, the USMCA “address[es] unfair currency practices by requiring high-standard commitments to refrain from competitive devaluations and targeting exchange rates, while significantly increasing transparency and providing mechanisms for accountability,” according to the U.S. Trade Representative.
As for Republicans including Grassley, they apparently don’t want tariffs used to either protect national security or to enforce the trade agreements as a firewall.
Both of the establishment political parties and Canada are once again underestimating President Trump. They’re making a big mistake. Leaving NAFTA is still the President’s trump card. Given a choice between protecting national security, putting America first and enforcing trade agreements on one hand, even if it means leaving NAFTA, or unilaterally conceding all three just to say he got a deal on the other, what do Congressional Democrats and Republicans think Trump will do?
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.
