In Apparent Victory for Trump, Pelosi Approves USMCA: Look Closer

Mish

Democrats agree to pass USMCA, Trump's NAFTA replacement.

Goodbye NAFTA, Hello USMCA

In what "seemingly" constitutes a major victory for Trump, Democratic Lawmakers Agree to Support North America Trade Pact.

House Democrats agreed to support the new U.S. trade deal with Mexico and Canada, marking a victory for President Trump who ran for office in 2016 on a pledge to remake or blow up the North American Free Trade Agreement.

House Speaker Nancy Pelosi called the new version of the U.S.-Mexico-Canada Agreement a “victory for American workers” at a Tuesday morning news conference. The pact will replace Nafta when ratified and contains provisions aimed at creating more manufacturing jobs, for example, by increasing the proportion of vehicles that must originate in North America for the cars and trucks to receive duty-free treatment.

It also includes updated labor rules and beefed-up enforcement provisions to hold firms in Mexico to account on labor, according to people familiar with the emerging deal.

USMCA had long been supported by Republicans and leading business trade groups but opposed by Democrats over concerns such as the legal language enforcing new labor rules. The Democratic approval Monday comes as a rare bipartisan moment of cooperation on economic policy at a time when Capitol Hill is divided over the impeachment inquiry.

USMCA Key Provisions

  1. Mexican Labor: U.S. labor unions and Democrats have long complained that Mexican workers can’t always form unions freely and demand fair pay, a situation they say puts pressure on U.S. manufacturing jobs. The Trump administration’s USMCA has new additional labor rules, not included in the current Nafta, as well as new enforcement procedures demanded by Democrats.
  2. Auto Rules: Compared with Nafta, USMCA significantly tightens the rules that the auto industry has to follow in order to trade vehicles duty free in North America. A certain proportion of a car will have to be produced by workers with higher wages, and a greater proportion of components will have to originate in North America.
  3. Digital Freedom: USMCA, unlike the current Nafta, includes rules mandating the free flow of data among the three countries. This and other novel provisions on exchange rates and other areas aren’t so crucial for Canada and Mexico but could later be applied to pacts with more restrictive countries or even China.
  4. Agriculture: A deal to pass USMCA means farmers of major crops no longer have to worry about President Trump potentially pulling out of the existing Nafta and leaving them fewer major export markets. USMCA also gives dairy farmers more access to Canada.
  5. Pharma: Big drugmakers are likely to be disappointed, since Democrats pushed the Trump administration to remove language that would have protected expensive biologic drugs from generic imitators for 10 years. The existing Nafta treaty has no such drug protections.

Point by Point Comments

1: Pelosi wanted more, and settled for less. Five days ago, the Wall Street Journal reported Democrats Want to Invade Mexico. Essentially, the unions demanded that the US be allowed to enforce labor laws in Mexico. However, Mexico would not agree. Canada would not have gone alone either.

2: The devil is in the details. I suspect Mexico will be able to circumvent these rules, if it wants.

3: Digital rules accomplish nothing.

4: Agriculture essentially remains the status quo. Wisconsin dairy farmers do get a minor victory.

5: This is a potential victory for US consumers, but one that Trump did not appear to want. In practice, however, I wonder if it does much.

AFL-CIO President Rich Trumka Tweets

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Dramatically Worse

Nearly anything the AFL-CIO supports is, by definition, bad for US consumers.

Thus, if this deal really is a "dramatic improvement", I propose it is dramatically worse.

The one place Trumka is correct, most likely by accident, is on Big Pharma.

Trump on USMCA

Devil in the Details

What this comes down to is how easily Mexico can get around key provisions 1 and 2.

The more Mexico adheres to those points, the worse the deal Trump negotiated.

Good for Unions, Bad for Consumers

If it's Good for Unions, It's Bad for Consumers.

I wrote about that construct a couple days ago in France Should Take a Lesson From Ronald Reagan: Fire the Strikers.

Even FDR understood that public unions and public service were impossibly incompatible.

Click on the link for discussion.

Proud Union Hater

Unions promote on seniority, not talent. Anyone who wants to get ahead based on performance, not seniority, should not be a union supporter.

Moreover, corrupt union leaders get into bed with corrupt politicians. The combination is the biggest vote-buying racket in the world.

This puts the public at the mercy of militant teachers' unions, police unions, and firefighter unions all demanding and receiving untenable pension promises.

GM and Ford

GM's bonds, despite a bailout (necessary because giving into union demands bankrupted the company) are just a step above Junk.

So are Ford bond.

The strike is over. Hooray. But GM has a second date with bankruptcy court. Ford will have a first.

Pensions

Meanwhile, please note that Illinois pensions are among the worst funded in the entire nation. Things are even worse in Chicago where Each Chicagoan Owes $140,000 to Bail Out Chicago Pensions.

Chicago Mayor Lori Lightfoot's only solution is the same as that of predecessor Rahm Emmanuel: Raise Taxes.

Get The Hell Out Now

These facts, and they keep piling up, is what prompted me to write on October 4, Escape Illinois: Get The Hell Out Now, We Are

Also consider Chicago Headed for Insolvency, Get the Hell Out Now.

In 2020 we are moving to Utah. We have had enough.

Trump Irony

Trump is bragging about USMCA. And most Trump supporters will see it that way.

But at best, the deal represents no significant changes.

Importantly, the more the AFL-CIO and Pelosi are right, the worse Trump's deal is in practice.

Mike "Mish" Shedlock

Comments (20)
No. 1-12
Six000mileyear
Six000mileyear

Ford had a chance to succeed, but chose failure when managers and executives refused to take the advice of the engineers who designed the transmission for the Fiesta and Focus. Warantee work has cost more than $3B. Redesigning or fixing the problems BEFORE hitting the makret certainly would have cost less. Every company or organization that is lead by someone who does not have sufficient knowledge about how to design and build its products are at risk of bankruptcy.

Casual_Observer
Casual_Observer

As I predicted. There are no enforceable laws in Mexico even by the Mexican government. They have enough problems with cartels and will invite any company to break laws as long as it brings jobs there. The underground economy in Mexico will continue to flourish. There is no trade agreement that can change the forces of globalization.

Casual_Observer
Casual_Observer

By the way, if you see Pelosi and labor celebrating the deal, you know Trump caved because either the economy is getting really bad or his days in the White House are numbered. Either way this is a huge loss for Trump and a win for the globalists.

Wilindan
Wilindan

For what it's worth, this is what former US ambassador to Canada, Bruce Heyman, said about the new deal (after the politically smart move of cheering it as a win-win-win):

"“Lo and behold, the president said the TPP was bad and NAFTA was bad...But what did we get? 65% to 70% of the exact language in this new USMCA is TPP. They lifted it right out of TPP. The rest is pretty much the structure of NAFTA with the exception of these auto provisions that were put in.”

As to the auto provisions, I suspect that Mish has a point in that they may lend themselves to being circumvented.

Heyman also said that “[a]lbeit the trade agreement isn’t so significantly different from NAFTA, I think optically it will appear much better.”

So, isn't the new deal another instance of the Trump administration tearing down some existing treaty or international agreement, creating some artificial crisis or strife in the process, then restoring most of if not all of the original provisions with minor or questionable revisions and declaring victory?

michiganmoon
michiganmoon

Around 2008ish I read an article claiming that Toyota would crush Ford going forward. The reason? Pensions.

The argument was that Toyota has workers on a 401K and once a worker is retired they pay the worker nothing. ZERO dollars of a new Toyota sold was going to pay retired workers. Meanwhile, Ford was paying something like $2,000 of every new Ford sold to prop up an insolvent pension....ie...Ford was still paying retired workers.

Therefore, Toyota can dump more and more into research and development than Ford and make better and better products.

Freebees2me
Freebees2me

Interesting.... So once "organized labor" signed on to the 'deal,' the dam broke. What is the political calculus?

The Democrats are impeaching this President. Why not simply say that you need to wait until after the November election? At least let the incoming 'Democratic' party president have a 'bite at the apple' and negotiate a better deal? That all seems reasonable.

Me thinks that Trump is a good negotiator and that this is a tacit admission that the Democrats agree and believe Trump is unstoppable.

Time will tell....

Inquiring minds want to know.........

L.Ron.Hoover
L.Ron.Hoover

It's the only thing trump's done that hasn't burned down, fallen over, and sank into the swamp... so... victory?

Waileong
Waileong

If it's good for AFL-CIO, then trump wins because he gets the vote for 2020.

It also gives credibility to his claim that us should do bilateral trade deals instead of tpp or other multilateral deals.

THP
THP

Electric cars are the future of the auto industry???? Personally I don't believe it. First of all is the price. The average American is not going to put up $40-50K for a vehicle that can only be used for a shopping spree. Americans want a vehicle that can PULL trailers, snow mobiles, boats, etc. Seen any electric vehicles pulling ANYTHING??? They keep talking about Telsa...In the first quarter, Tesla burned through $1.5 billion of its stockpile of cash and cash equivalents, which shrunk to $2.2 billion. The only ones buying their automobile are super rich. The working class isn't going to plunk down $100K for a toy car that is limited in driving distance. Remember GM's salvation??? The Volt. You don't even hear about the Volt any more. It's been discontinued for other future GM electric losers. Believe me..the reliable gas driven autos will be available for the rest of (anyone reading this post) your life.

RonJ
RonJ

"Chicago Mayor Lori Lightfoot's only solution is the same as that of predecessor Rahm Emmanuel:"

Bite off the hand that feeds you.

Realist
Realist

Assuming that the new NAFTA gets passed by all 3 countries, that is a good thing. Because any trade deal is better than no trade deal. However, there are no “winners” here.

Sadly, this deal is actually a step backward from the previous NAFTA agreement (ie the negatives outweigh the positives). But the differences are not major enough to matter much overall.

Politically, in the US, all sides will try to take credit for this “wonderful agreement”. Yet after two years of negotiations, and the cost of all the negative consequences (unnecessary tariffs, unnecessary uncertainty for businesses, not to mention souring relations with your two closest trading partners) the US has managed to actually slightly restrict trade with this agreement.

And the trade friction the US has created with so many other countries will continue to slow economic growth in the US and those other countries.

I feel badly for many Americans (farmers in particular), because they will continue to suffer under Trump’s confrontational trade policies. But Trump doesn’t care about them, as they are merely cannon fodder for his political posturing.

Casual_Observer
Casual_Observer

Common ground Why the revised USMCA pleases both Democrats and Donald Trump On this trade deal, their interests are aligned Editor’s note (December 11th): This article has been updated.

UNION LEADERS and Democratic lawmakers were cool at first towards the USMCA, a replacement for the 25-year-old North American Free Trade Agreement (NAFTA) which was signed by American, Canadian and Mexican trade negotiators over a year ago. But on December 10th, after months of further talks, they swung behind a reworked version. Richard Trumka, the head of the AFL-CIO, America’s largest trade-union group, proclaimed a “new standard for future trade negotiations”. Nancy Pelosi, the Democratic Speaker of the House of Representatives, called it a “victory for America’s workers”.

The reversal may seem surprising. The AFL-CIO has not endorsed an American trade deal in nearly two decades, and Ms Pelosi is trying to get President Donald Trump, whose deal this is, impeached. According to polling data provided to The Economist by YouGov and published on December 11th, though 79% of Americans say that “trade and globalisation” are important to them, only 37% say the same of replacing NAFTA with the USMCA.

But both the politics and the content of the deal have led to unexpected alliances. Supporting the USMCA lets Democrats claim that they are not obstructing Mr Trump’s agenda for the sake of it. And on trade, Mr Trump has more in common with the left wing of the Democratic Party than with his own Republicans. Many Democrats agree that previous deals made trade too free, with too few of the benefits going to American workers. And several of the changes secured by the Democrats are meaningful. Some are sure to be to Mr Trump’s taste, too.

Among the revisions are an end to intellectual-property protections for biologics, a specific class of drug, and weaker patents for pharmaceuticals in general. Democrats say such protections stifle competition from generics and raise drug prices. Unsurprisingly, those changes went down badly with the Pharmaceutical Research and Manufacturers of America, an industry lobby. Its president said they amounted to an abandonment of protections for American companies.

Enforcement has been beefed up. Improvements to NAFTA’s dispute-settlement system are “probably the most important thing in the whole treaty”, says Jesús Seade, Mexico’s chief negotiator. Under NAFTA, countries could block the appointment of arbiters to hear awkward disputes. This should no longer be possible.

The shared vision of the Trump administration and Democratic lawmakers is clearest when it comes to labour standards. The aim was to make it less attractive to move jobs from America to Mexico than had been the case under NAFTA by supporting Mexican workers’ employment rights. But in the first version of the USMCA, the AFL-CIO complained, the bar for proving a breach of the rules was too high and enforcement mechanisms were too onerous. Critics pointed to the only labour complaint ever to make it as far as a formal dispute as part of an American trade deal: a case against Guatemala in which arbiters agreed that the rules had been broken, but not that any harm to trade or investment had been demonstrated.

The new deal shifts the burden of proof regarding such harm. To avoid penalties, defendants will have to show that it did not happen. Moreover, accusations that manufacturers are breaking Mexican laws covering freedom of association and collective bargaining will be sent for speedy consideration to panels of “independent labour experts”. Rule-breaking will lead to penalties on exports. Overall, the revised labour provisions are good for Mexico, Mr Seade says, and will reinforce its government’s own labour reforms.

The revised USMCA will restrict trade a bit more than NAFTA did. It will probably not live up to the hype. Even if greater use of collective bargaining raises Mexican wages, the USMCA’s official impact assessment suggests that American wages would rise by just 0.27% in response. But for Mr Trump, his Democratic foes and their neighbours in Mexico, it counts as a win.


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