U.S. Secretary of Commerce Wilbur Ross was in Roanoke last week to talk up the new trade deal with Canada and Mexico that is intended as a successor to the North American Free Trade Agreement.
The immediate audience was a room full of business leaders, heavy with manufacturing representatives. The intended audience was much further away — Virginia’s congressional delegation (two of whom were present, Reps. Ben Cline, R-Rockbridge and Morgan Griffith, R-Salem).
Here are six takeaways:
1. The lack of a scheduled congressional vote illustrates one of the things wrong with Congress. Ross said he was confident the deal would pass — if only House Speaker Nancy Pelosi would bring it up for a vote. Here’s a key way that Washington is very different from Richmond. In the General Assembly, every bill gets voted on in some way. A bill may get killed by a handful of legislators in a subcommittee at 7 a.m., but at least something happened, and you know who did what. In Congress, nothing happens in the House unless the Speaker lets it happen. The same in the Senate, with the Senate Majority Leader. It doesn’t matter which party is in charge; the dynamic is the same. To really break gridlock in Washington, we need Congress to change its rules so that every bill actually gets voted on.
2. Did NAFTA help or hurt the American economy? Yes. This is where things get complicated. Where you stand depends on where you sit (or, in this case, work). NAFTA did accelerate the loss of some jobs to Mexico, but it also resulted in new jobs in the United States in fields related to exports – so whether it was good or bad depends on whether your job disappeared or got created, and whether those new jobs paid more or less than the ones before. There are people in all those categories. Many economists say that, on balance, NAFTA helped the American economy — but that’s cold comfort if you’re in the minority who found themselves on the wrong side of that balancing act. There’s also this to consider: The economy would have changed whether NAFTA existed or not, so blaming it and it alone seems a simplification of a complex set of dynamics. To think that without NAFTA the economy of 2019 would still look like the economy is 1993 is to believe a fantasy. That trade deal might have accelerated certain changes, but didn’t cause them. You can blame big business — it can make more money employing low-wage foreign workers than higher-wager American ones. Or you can blame the American consumer —we don’t like to pay more than we have to.
3. Even if you think that NAFTA was a good thing, a revision makes sense. NAFTA was signed in 1992 and ratified in 1993. That pre-dates the digital age. The economy has changed a whole lot since then. It seems logical that as the economy changes, our trade deals should, too. Ross pointed out that there are now sections that deal with the digital economy, a key portion of the economy that didn’t exist when George H.W. Bush inked the original deal.
4. Do we really have a trade deficit with Canada? Ross said we did. That’s true, but not the whole truth. We have a trade deficit in goods with Canada — physical stuff that we’re buying and selling. However, “goods” are only one part of the economy; they don’t include services, which are things that someone pays someone else to do, such as banking or health care or a lot of online business. When you count both goods and services, the U.S. actually had a trade surplus with Canada — $7 billion in 2018. That figure, by the way, comes from the Trump administration itself. Canada makes a lot of stuff that it sells into the U.S.; we have a $19.8 billion trade deficit there. But we sell a lot of services into Canada, and we have a $26.7 billion trade surplus there. Is the former bad and the latter good? Again, it depends on the line of work you’re in. It’s also somewhat philosophical. The Trump administration sees trade as a zero-sum game — a surplus is good and a deficit is bad. But if we’re buying things we want, does it really matter? Think of it this way: We have a trade deficit with Canada on maple syrup but (a) we don’t have that much American maple syrup to sell to Canadians and (b) we like syrup on our pancakes. So why should we worry, as long as we have money to pay for the syrup? The problem, of course, comes with other sectors of the economy: If maple syrup were somehow vital to our national security, then we’d want to be more protectionist about making sure we had a vital domestic maple syrup industry. As with many things, there are politics involved. A lot of those service sector workers are probably in cities that vote Democratic; a lot of those manufacturing workers producing goods may be in smaller communities that either vote Republican or are up for grabs. That’s likely why Ross emphasized the trade deficit in goods, not the trade surplus in services.
5. The deal may not do what Trump wants it to do. The biggest change concerns auto imports. The supply chain for many automakers now involves operations on both sides of the U.S.-Mexican border. The new deal says that to avoid U.S. import tariffs, 40% of the vehicle being imported must be made in a plant where workers make at least $16 per hour. The average Mexican autoworker is paid $3.14 per hour. Trump obviously hopes this will prompt automakers to move jobs back to the U.S. — especially to electorally-important states such as Michigan and Ohio. Ross talked up this part of the deal in Roanoke. However, Forbes magazine says U.S. autoworkers are typically paid a lot more than that — anywhere from $16 to $38 per hour: “Given that benefits would be more expensive in the U.S., even if companies paid workers in Mexico $16 an hour starting today, [Mexican plants] would still have an advantage over [U.S.] labor.” American workers might not benefit, but American consumers might have to pay for higher-priced (but still cheaper) Mexican labor. Higher wages in Mexico, though, might accomplish another Trump goal: Reducing immigration. The best way to reduce migration from Mexico and Latin America isn’t to build a wall, but to raise living conditions there. This is actually a foreign aid provision.
6. Canada and Mexico are more important to us than China. In 46 of the 50 states, one or both of these countries are the top export markets. For Virginia, Canada is first and Mexico is third. To a large extent, our economy depends on healthy economies north and south of the border, which is why it would be good to have a long-term agreement on just how that trade works.