Perspectives on Trade and Potential Outcomes

N P R. This is the indndicator from Plan of Money. I'mdrian Ma. And I'm Dariian Woods. Six years ago, President Trump signed a trilateral trade pact called the US Mexico Canada Agreement, or USMCA. Well, if you're in Canada, you call it the C USMA czma. or in Mexico, it's called Ttado, Mexico Estados Nirros Canada. Sounds like bad bny at the end of the Super Bowl Three names, and you know what's funny, the word trade doesn't appear at all President Trump was a driving force behind this agreement. So when he signed it in twenty twenty, he was pretty proud of it. The USMCA is the largest, fairest, most balanced and modern trade agreement ever achieved So if that's how Trump felt back then, why? just days ago did he say this to report it? Well I would write we do better as a country if we don't have an agreement Yeah, I' thinking about maybe we won't be able to make a deal. I would rather not have the USMCA The timing of this shift isn't coincidental. That's because today, july first, the three countries are getting together to decide whether or not to continue the USMCA Today on the show we'll explain why and what happens if they can't make a deal Before the USMCA, there was NAFTA. The North American Free Trade Agreement It went into effect in nineteen ninety four and tore down trade barriers between the US, Mexico, and Canada And in the years that followed, there was a boom in trade in everything from crops and metals to electronics and cars. Goods flowed across borders like never before. and unfortunately, so did a lot of American manufacturing jobs. And This is partly why President Trump during his first term, called NAFTA a lousy deal, why he pushed Mexico and Canada to renegotiate And how we got the USMCA. In some ways, the USMCA is just a souped up version of NAFTA. It didn't so much reinvent the wheel as put some air in the tires and add some rims. For example, USMCA tweaked policies that said how much of a liseral car should be made in North America in order to qualify for tariff free treatment I also had a new section covering e commerce. But maybe the biggest structural change from NAFTA was the introduction of a sunset clause Yeah, a sunset clause. Think of it like a sell byy date on a jar of pickles. You could still eat it, but the countdown to expiration has begun And the USMCA's sell by date is july first, twenty twenty six So what happens now For some answers, we called up Barry Appleton. He's an international trade expert who teaches at New York Law School Barry says the US, Mexico and Canada basically have three options Option A, they can decide to lock in the current agreement for sixteen years. Everyone can play nice. okay, and we're going share the playground in the sandbox. okay? So that's just you leave everything the way it is If they don't extend the deal, there's option B It's not like the agreement falls off a cliff. Really, it's more like a very long down escalator. Every year there's a review until everybody's happy, which means the US And that puts political uncertainty and pressure onto the other parties If in ten years there is still no deal, then the US MCA expires Trump seems to have soured on this deal that he himself championed just six years ago Berry has a theory as to why, why the US is likely to favor option B And that's because it gives the US a chance to extract more favorable terms of trade from Canada and Mexico The administration sees this as a win they see more leverage, someone's going to have to give them a deal. because if they don't There's still option C With six months notice, any party can withdraw from the USMCA And while Trump has said he might still sign an agreement also said he'd quote, rather have it terminated, unquote. So how is this playing out with the US's trade partners As someone who's previously advised Canadian officials on trade issues, Barry says the Canadians still seem kind of dumbstruck that they're even in this situation. Canada is spending its time feeling like the aggrieved spouse going to marital therapy. And it's a bad strategy Because unless both sides want to get help That doesn't work. So their strategy is We all love each other. We've been your best partners. We're going to grow the pie Nobody's listening to that. That counts right now By the way, I agree with what they're saying. it's just it's the wrong strategy for this game How the game Berry thinks Trump is playing anywhay This is not a strategy about joint economic benefit and development. This is a strategy about power redeployment. It's really about who controls the playground. and how it works. And some kids want to bully the other kids you gota decide. what are you prepared to live with? Are you saying the U. S playground bully here trying to shake down Canada for its lunch money. Yeah, Is America the bully in this playground for sure? And are they taking the lunch money? Yeah, they're taking the lunch money, they're taking the recessed snack, they're taking my lunch box and everything else I can get to, and they're kicking some sand in my face at the same time Okay, and to put it in international trade terms, Barry says that Canadians may have to concede ground on some of the US's concerns on things like Canada's protectionist policies on dairy products, its decision to import Chinese electric vehicles, and what percentage of auto parts should be made in the US Given that about three quarters of Canadian goods go to their neighbor to the south, they can't afford to make America mad Now, unlike Canada, Mexico has been trying to play ball and has engaged in direct negotiations with the US ahead of the july first deadline But Mexico would also just prefer to extend the USMCA Antonio Ortiz Menna is a professor at Georgetown University who specializes in US Mexico trade relations. And he was also on the Mexican negotiation team for NAFTA back in the nineties. He says the current agreement was a much needed modernization of NAFTA. I would say because it's much more comprehensive and the economy that we had in nineteen ninety is very different from the current economy While NATA was focused on goods, the USMCA added more provisions covering things like financial services and telecommunications Trade and services have become much more important than they were in nineteen ninety. And the fact that they're incorporated in a more comprehensive way, I think is positive. He also says the USMCA included a new mechanism for countries to settle disputes which is good for a relatively smaller economy like Mexico's. If you just use market power, It's difficult to negotiate with the US. but if you use legal arguments, is more of a level playing field Of course, the Trump administration has not limited itself to these sorts of dispute resolution mechanisms, to say the least. During the past year and a half, President Trump's trade war with the world has included Canada and Mexico. And while the USMCA shielded most of those countries' exports from tariffs in the US, a lot of goods weren't covered. So for example, the US still slapped tariffs up to fifty percent on things like imported steel and aluminum This is the atmosphere in which the USMCA is being reconsidered today Antonio says more so than when NAFTA was being negotiated in the nineties, talks surrounding the USMCA seem a lot more adversarial more zero sum I'm watching a lot of World Cup games, you know, a goal. is ero su. But I don't think that in many instances Tade is zero zum and sometimes it's treated like that. And if it's treated like that you could end up in a situation where all countries lose. Id like to explain potential outcomes of the USMCA review Win, win or loose, loose The win win is pretty clear, right? Everybody makes money, everybody's happy How could it be a lose, lose? Antonio says, take the issue of autos Trump reportedly wants cars to be made with at least fifty percent American parts in order to qualify for preferential tariff treatment. And while that might be a win for US auto parts makers, Antonio says that it could also backfire. That requirement could make the resulting cars more expensive, which could ultimately make North American cars less competitive on the global market Lose, lose We reached out to the White House to ask how they respond to Berry's criticism that the U.S is more concerned with flexing its power than fostering mutually beneficial trade White House spokesperson Krush D Sty responded, quote The sole motivation of the Trump administration's trade agenda is to end the decades long era of American workers and businesses being ripped off and undermined by unfair foreign trade practices, end quote. This episode was produced by Corey Bridges and engineered by Travis Hagen. It was fact checked by Sier Juarez, Kaken Canon is our editor, and the indicators of production of NPR