No, Mexico is not paying for the border wall. And yes, there are still bruised egos south of the border from the way President Trump has made illegal immigration a key issue with Mexico cast as the villain.
But the same Mexican government he has reviled reached a preliminary agreement with the United States this week to revise and reform the North American Free Trade Agreement, thereby keeping a Trump campaign promise. The results have won praise from farmers, the aluminum industry and the Teamsters Union, among others. While we must await full details, the deal appears to be beneficial for American workers who have long complained about unfair trade agreements.
A report from the U.S. Trade Representative Office says the new deal will have the strongest labor provisions of any U.S. trade agreement. Among them, 40 to 45 percent of the content of automobiles manufactured in Mexico for export to the United States must be made by workers earning at least the basic manufacturing wage in the United States of $16 an hour. Mexico also has committed to passing laws that ensure the right to collective bargaining. Other labor provisions set basic rules to guard against labor exploitation.
Seventy-five percent of the content of automobiles must be sourced in North America to escape tariffs. This includes steel and aluminum, beneficial to the U.S. steel and aluminum industries. Similar provisions apply to other basic materials such as glass, textiles and chemicals.
Some economists complain that the new agreement is highly protectionist and will lead to higher automobile prices, but American unions should be very happy with these steps. The political timing also benefits Mr. Trump, who can say there’s a danger that Democrats could scuttle the agreement if they seize control of the House because the deal cannot come up for a vote before next year.
There is a range of other important agreements involving intellectual property, financial services and digital products.
The agreement sheds light on President Trump’s approach to trade negotiations. He slapped tariffs on Mexican steel and aluminum, among other products, in order to create pressure for negotiations, which originally also included Canada. When Mexico expressed interest in getting a deal and Canada balked at U.S. demands that it allow freer entry to U.S. dairy products, Mr. Trump’s team dropped Canada from the talks. Now Canada faces one-on-one negotiations with the U.S. on NAFTA revisions from a weaker position.
Mr. Trump this summer signaled a willingness to reach a free trade agreement with the European Union, on which he has also imposed tariffs. After Canada, that may be the next deal on the table.
Washington Post columnist David Ignatius sees the agreement with Mexico and the pending negotiations with Canada and Europe as a sign that Mr. Trump is gaining momentum toward his ultimate aim of reaching a better trade deal with China. Among other benefits, clearing the air with other close trading partners could help the U.S gain their valuable support in a showdown with China over its theft of intellectual property and trade barriers to western goods and capital in Chinese markets.
One of the nation’s top economists, Mohamed El-Erian of Allianz, said he thinks there’s a 60 percent chance that President Trump’s hard-nosed trade negotiation tactic will succeed in achieving a fairer trade balance with China, and only a 25 percent chance that it will blow up into a global trade war. But he also downplayed the chance that Mr. Trump could make a major breakthrough with China that would fundamentally change world trade patterns, giving it a 15 percent likelihood.
Two years ago both major presidential candidates ran against the Obama administration’s Trans-Pacific Partnership trade agreement. Now Mr. Trump has incorporated its key labor provisions into the new deal with Mexico. It may be that his preference for one-on-one negotiations shows a way out of the trade negotiation bottlenecks of the past decade or more, and builds support for more ambitious deals. If so, that will be good for the nation.