U.S. Republican presidential nominee Donald Trump and Mexico's President Enrique Pena Nieto arrive for a press conference at the Los Pinos residence in Mexico City, Mexico, August 31, 2016. REUTERS/Henry Romero
Donald Trump likes to pick off individual countries in trade talks. On this occasion, Enrique Peña Nieto's Mexico gave him exactly what he wanted © Reuters

A deal, says Donald Trump, is done. The US president says he will replace the North American Free Trade Agreement with a bilateral deal with Mexico. Canada will either join in or be punished with tariffs. Manufacturing jobs will return to America, and all will be fine. As usual with Mr Trump, the deal he unveiled on Monday and his ability to deliver it have been heavily oversold. It is not by any means a comprehensive updating of Nafta. Its most substantive part, on cars, is at best ineffectual and at worst destructive.

After a year in which the president has abused executive power to impose tariffs on a variety of trading partners, this would be an excellent time for Congress to reassert its authority over trade deals and demand that some sanity and transparency be restored to the progress. Nafta cannot be scrapped or rewritten without Congress’s say-so. On this basis, it should decline to give it.

Depending on the detail, much of which has yet to emerge, the deal may not be as disastrous as it looks. Much is window-dressing. The most substantive provisions are the higher requirements for rules of origin on cars. To the extent that auto manufacturers can find enough flexibility to meet the new requirements — in particular to finesse the condition that a certain proportion of value be added by higher-wage workers — many of their existing supply chains can be maintained.

As so often with trade restrictions, however, the knock-on effect in creating distortions down the line could be considerable. Part of the function of the deal, as well as encouraging more auto production in the US, is to push Chinese car parts out of North American supply chains by reducing the amount that can be incorporated into cars benefiting from Nafta preferences.

Yet other countries may simply benefit instead. Increasing supply chain complexity and moving production to the US is likely to push up overall prices for cars. That is not just bad for American consumers. It also gives an opening to auto companies in the EU, Japan and South Korea, even if they have to pay the 2.5 per cent Nafta duty. That, in turn, will only encourage Mr Trump to hit car imports from there with more of his beloved punitive tariffs.


As disturbing as the deal itself is the way it was done. Mexico, abandoning its promises to negotiate trilaterally, bypassed Canada, largely for domestic political reasons. Talks with the US were co-ordinated between the outgoing presidency of Enrique Peña Nieto and the incoming administration of Andrés Manuel López Obrador. There was a strong incentive for the former to bind his successor by keeping many of Nafta’s arrangements in place, and for the latter to minimise political pain by getting the deal done before taking over.

Mexico has weakened Canada’s bargaining power and put it under intense pressure to join the deal. Mr Trump likes to pick off individual countries in trade talks, rather than negotiate collectively. On this occasion, Mexico gave him exactly what he wanted.

Opposing Mr Trump is never much fun. But Canada — and Capitol Hill — will do the world trading system a great favour if they decline to be bounced into immediately supporting Mr Trump’s agreement with Mexico. Congress, in particular, has a solid chance to exercise its prerogatives on trade deals beyond its strategy to date of complaining ineffectually about Mr Trump’s emergency tariffs.

The best that can possibly be said about Monday’s agreement is that it is meaningless. It is emphatically not a positive development for Nafta, or for the quality of trade policymaking in the US and beyond.

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