The updated version of the North American Free Trade Agreement unveiled this week does not represent a clear improvement on the original 1994 deal.
There are changes for the better, like Mexico’s agreement to adopt stronger protections for labor unions and Canada’s agreement to allow the sale of more American dairy products. But there are also changes for the worse, like restrictions on auto imports that will raise the price of new vehicles. And there are glaring omissions, notably the absence of a commitment to address climate change.
The best argument for passage is prophylactic. President Trump has threatened to abandon NAFTA in the absence of a new deal, and the changes are less important than the part that would stay the same: a free-trade area for most goods encompassing the three largest nations of North America.
The economic integration that followed the original deal was a jarring experience for many American workers and communities. But rebuilding trade barriers, particularly between the United States and Mexico, would forfeit the benefits of trade without reversing the damage.
On balance, that is reason enough for Congress to pass the deal.
There is certainly room to improve the original 1994 agreement, which shifted manufacturing jobs to Mexico in part by allowing companies to take advantage of its lower environmental standards and the weakness of its labor unions. The deal also predates the Internet Age, and its outdated rules have constrained the use of the internet to facilitate cross-border flows of goods, money and information.
The new deal, called the United States-Mexico-Canada Agreement, represents an improvement on both fronts. It incorporates rules for the digital economy substantially negotiated by the Obama administration as part of its failed effort to create a broader Trans-Pacific Partnership. And, at the behest of American trade unions and their allies in the Democratic caucus, the deal also requires new protections for organized labor in Mexico, including the creation of specialized panels to adjudicate labor disputes.
The labor protections and strengthened environmental standards are both necessary and mutually beneficial — although they would have been far more consequential had they been included in the original agreement.
In some important respects, the agreement also improves upon the Trans-Pacific Partnership. It discards an effort by American pharmaceutical companies to force Mexico and Canada to adopt stronger restrictions on generic medications. The industry argues that it would use the revenue to invest in innovation, but congressional Democrats rightly insisted that holding down drug prices is a higher priority.
The deal also sharply reduces the ability of corporations to seek concessions from national governments through an extrajudicial system called “investor state dispute settlement.” The system amounts to a crowbar that companies have used to free themselves from obligations justly imposed by sovereign nations.
Unfortunately, these benefits are counterbalanced by the Trump administration’s heavy-handed efforts to revive American manufacturing by reducing foreign competition.
The administration used the threat of ending NAFTA to extract agreement from Canada, and especially Mexico, on a package of protectionist measures designed to repatriate jobs in auto manufacturing and associated industries, like steel making. The rules, for example, require that a minimum portion of the average vehicle is produced by workers making at least $16 an hour — far above wage rates in Mexico.
The United States International Trade Commission predicts the measures will succeed in the narrow purpose of shifting work to the United States, but only at a high cost: Consumers will pay more for new vehicles, resulting in fewer sales, and economic growth will suffer.
There is a broader threat, too. Shifting work to Mexico has allowed American car companies to reduce costs, and to compete more effectively with foreign producers. Without NAFTA, there might be even fewer car-making jobs in the United States today. And as a result of the changes, there may be fewer in the future.
The commission still concluded that the new NAFTA would add $68.2 billion to economic output, an increase of 0.35 percent. But its analysis rests on a pair of big assumptions. First, the commission asserted the deal would encourage cross-border investment by easing doubts about the stability of regional trade rules. But one feature of the new deal is an agreement allowing the United States to withdraw after 16 years, which seems likely to have the opposite effect. The commission also projects a big increase in e-commerce, because the deal brings the NAFTA framework into the digital age. But Mexico and Canada already have separately adopted the changes required by the deal.
Finally, the new deal amounts to yet another missed opportunity to forge the international cooperation necessary to limit climate change. More than 100 House Democrats signed a letter earlier this fall seeking binding commitments on climate standards as part of any revisions to NAFTA. But faced with the Trump administration’s willful refusal to address climate change, Democratic leaders decided to prioritize reaching a deal on other issues.
The White House has described the result as “the biggest and best trade deal in the history of the world.” It is more accurately described as a minor deal that may do more harm than good. That it may also be the best possible outcome under current management is a reminder of the many ways in which Mr. Trump’s presidency continues to ill serve the American people.