Must-Read: C. Fred Bergsten and Monica de Bolle, eds.: A Path Forward for NAFTA

Must-Read: Bergsten and de Bolle and company try, politely, to get the attention of the Trumpers and their allies with respect to not breaking the North American economy. I don’t think it’s effective to be polite here:

• Half of the Trumpers’ plan for revising NAFTA is to politely beg Canada and Mexico to agree to the provision of the TPP that Trump trashed on his first day in office.
• The other half of the Trumpers’ plan for revising NAFTA is an incoherent desire to achieve month-by-month bilateral trade balance with every other country: “The United States has a trade deficit with Mexico of $60 billion. And the United States will not have those deficits anymore. We do not mind a small deficit, and we do not mind a little time to get there. But we cannot do this and we cannot sustain like this. We will not be the United States anymore. And we cannot listen to this. I was voted on the basis that we are losing so much money to Mexico in terms of jobs, factories, and plants moving to Mexico. We cannot do this anymore and I have to tell you it is not sustainable…. What I want is fair tariffs at the border, and I want to be fair because I want a great relationship with Mexico…” And that is Trump at his most well-briefed and most coherent.
• All of the Trumpers’ plan for revising NAFTA is to, somehow, declare victory—that Trump has gotten a “good deal”—no matter what actually happens

C. Fred Bergsten and Monica de Bolle, eds.: A Path Forward for NAFTA: “The North American Free Trade Agreement (NAFTA) ranks at the top of anyone’s list of the most controversial trade deals of all time… https://piie.com/system/files/documents/piieb17-2.pdf

…NAFTA reduced tariff barriers to zero for the United States, Mexico, and Canada and led to a tripling of trade among these three countries over the last 23 years (figure 1). The Peterson Institute for International Economics (PIIE) has abundantly detailed the many gains and acknowledged costs of NAFTA in numerous publications (see, e.g., Hufbauer and Schott 2005; Hufbauer, Cimino-Isaacs, and Moran 2014). Now that President Donald Trump has launched a renegotiation of NAFTA—having at least for the moment abandoned his 2016 campaign pledge to cancel the pact outright after tentatively deciding to do so on April 22—the fundamental question is: Can such a renegotiation produce a positive result?

A broad range of experts who have contributed to this PIIE Briefing say “yes.” The new negotiations can succeed only if they focus on how the agreement can be updated and upgraded, however. The overarching goal of negotiators from the three participating countries must be to boost the competitiveness of North America as a whole, liberalizing and reforming commercial relations between the three partner countries and responding to the many changes in the world economy since NAFTA went into effect in 1994. These changes include the digital transformation of commerce, which has enabled sophisticated new production methods employing elaborate supply chains, transforming North America into a trinational manufacturing and services hub. But concerns about labor, the environment, climate change and energy resources, and currency issues have become more acute than they were at the time NAFTA started. Commerce Secretary Wilbur Ross was thus correct when he said that NAFTA “didn’t really address our economy or theirs [Mexico and Canada] in the way they are today.”

Ultimately, however, NAFTA can be modernized only if President Trump’s zero-sum “America First” agenda is replaced by one that seeks to benefit all three countries and improve their competitiveness in an increasingly competitive global economy….Obsessive concern about bilateral trade balances and narrow special interests in the United States, as opposed to broader national and regional interests, would not only deadlock the negotiations but also likely lead to inferior outcomes for all three countries, or even a breakdown in the talks and… abrogation…. And walking away from NAFTA altogether would be disastrous for consum-ers, producers, and retailers in the United States…