Trump To Start Negotiations on NAFTA With Canada, Mexico
The three will meet soon to discuss the agreement.
At the White House, President Donald Trump announced meetings with Canadian Ptime Minister Justin Trudeau and Mexican President Enrique Peña Nieto to discuss the North American Free Trade Agreement (NAFTA). He said:
“We’re going to start some negotiations having to do with NAFTA,” Trump said.
“Anybody ever hear of NAFTA?” he said. “I ran a campaign somewhat based on NAFTA. But we’re going to start renegotiating on NAFTA, on immigration, on security at the border.”
Trump has described NAFTA as “terrible.” If America cannot come to an agreement with Canada and Mexico, then it “will move to withdraw from it.”
President Bill Clinton signed the agreement with our neighbors in 1994. They all agreed to form “one of the world’s largest free trade zones by reducing or eliminating tariffs on most products.”
Trump will have to convince the Republicans in Congress to go along with a repeal of NAFTA if the meetings do not satisfy him. They support free trade and if that happens, America “runs the risk of being met with retaliatory tariff hikes in other countries — meaning the cost of goods shipped to the United States could become higher for American consumers, and US companies could lose access to key foreign markets.”
Trump spoke with Nieto on Saturday, who called the new president to offer congratulations. Trump praised Nieto and said the two will meet on January 31 to discuss immigration and border security.
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meaning the cost of goods shipped to the United States could become higher for American consumers
Well, yes, that’s exactly what tariffs are supposed to do—increase the costs of goods from some locations, thus making goods produced in other locations more attractive.
And it’s big business; before the permanent personal income tax in 1913, it was the government’s major source of revenue. There is an argument—and not an entirely frivolous one—that the Civil War wasn’t about State’s Rights or the Peculiar Institution, but was set off by the question of tariff revenues and who was to collect them in Charleston Harbor after South Carolina’s secession. It’s no accident that secession turned into a shooting war when the federal fort there—the local center for federal revenue collection—was besieged and bombarded.
It is self-balancing. If a company exports the same or greater $ than it imports – no tariff.
[M]eaning the cost of goods shipped to the United States could become higher for American consumers, and US companies could lose access to key foreign markets.”
Well, that really IS the question, isn’t it? DOES NAFTA allow for United States of America goods to infiltrate into Mexican and Canadian markets in sufficient amounts to justify the trade-off of Mexican and Canadian goods being infiltrated into United States markets?
Donald Trump seems to think the answer to that question is “no.” He does have a point. NAFTA, meant to be a mechanism to allow goods into other countries, has become a tool for businesses to move cross-border, re-brand or re-nationalize themselves as a Canadian or Mexican company, and take advantage of tariff-free sales into the United States while reducing production costs by paying lower wages.
There’s a whole INDUSTRY set up around this on the Mexican-United States border with the factory being called a “maquiladora,” where the raw materials or components are shipped in from the United States, the products are manufactured or assembled, and they are shipped back across the border as completed assemblies, all duty free, for the purpose of taking advantage of cheaper labor.
Mexico isn’t buying significant quantities of United States products. A.) On the whole as a nation, it’s too poor to do so. B.) many of the durable-goods products that they would want are already manufactured there, and the local market can be supplied with either the non-conforming product cast-offs or with simple local sales direct from the factories.
If the Market doesn’t exist, and only creates a trade-imbalance which allows for a partial market distortion, does that make sense? Depends on you economic viewpoint.
Question: Is it better to have some value escaping the United States in the form of lower wages and lost employment in order to benefit the populace as a whole through lower prices of goods, lower local environmental costs (waste disposal) and lower human capital costs (injuries from production)?
The answer to that question will largely dictate whether you think withdrawing from NAFTA is a net-plus or a net-minus.
Well, that really IS the question, isn’t it? DOES NAFTA allow for United States of America goods to infiltrate into Mexican and Canadian markets in sufficient amounts to justify the trade-off of Mexican and Canadian goods being infiltrated into United States markets?
That is the way ignorant mercantilists like Trump look at it, but as Adam Smith comprehensively demonstrated 240 years ago it is the wrong way to look at it. There is not “trade off”, and allowing Americans to buy foreign-made goods cheaply is not a price we pay for some benefit, but is itself the greatest benefit. The general interest is that of the consumer, and by definition it is always more important than the special interests of the domestic producers with whom imports compete.
Enabling domestic producers to sell their goods cheaply to foreigners is good, and if we can achieve it we should, but it’s not as important as cheap imports for domestic consumers, and certainly the latter should never be held hostage for the former.
This is basic economics, pretty much the most fundamental and universally accepted principle of economics. It ain’t rocket surgery.
Here is the problem with NAFTA. It allows one country, Mexico, to produce the same consumer goods which are produced in the US and sold in the US to be produced more cheaply. And, these consumer goods can be imported into the US without tariff. The imported goods can be sold more cheaply than those manufactured in the US while allowing the manufacturer to realize a higher profit margin. This encourages US manufacturers to relocate operations to Mexico. When this happens US workers are either laid off or no additional workers are hired if the market expands. However, as the consumers in the US require jobs, in order to purchase the products manufactured in Mexico, and those jobs have been eliminated by being moved out of the country, the consumer market in the US dwindles. Individual buying power decreases and any reduction in cost realized by manufacturing a product in Mexico and selling it in the US is eliminated. The US economy stagnates.
This is exactly the conditions which prevail today. It may be good, from a globalist perspective that the economy of Mexico increases while the economy of the US decreases. But, from the perspective of the consumer in the US who needs substantial employment in order to survive, it is not so good.
When this happens US workers are either laid off or no additional workers are hired if the market expands. However, as the consumers in the US require jobs, in order to purchase the products manufactured in Mexico, and those jobs have been eliminated by being moved out of the country, the consumer market in the US dwindles. Individual buying power decreases and any reduction in cost realized by manufacturing a product in Mexico and selling it in the US is eliminated. The US economy stagnates.
Not necessarily, which was Milhouse’s point above.
While it ~can~ cause micro-economic disruption to a family unit or locality, on a macro-economic scale, the disruption is outweighed by the reduction in expense of the purchase of the consumer goods to the population as a whole.
However, it ~can~ also cause micro-economic restructuring which allows for the more efficient use of capital, labor and effort for the production of higher-value-added goods/services.
That is ~why~ I asked the question that I did. I was hoping to solicit individual concepts on what is the proper economic framework for the United States as a nation. But perhaps the topic is too dry for general consumption.
Now, I don’t agree with Milhouse on this: There is not “trade off”, and allowing Americans to buy foreign-made goods cheaply is not a price we pay for some benefit, but is itself the greatest benefit.
There most certainly IS a trade-off, in that jobs and economic prosperity which could be performed here are not performed here. The loss of domestic employment at a lower level is a value lost ~IF~ there is nothing to replace that loss of employment. And it can be very disrupting on a micro-economic scale to individual families and localities. But, on the whole I do agree with you that it does provide a much higher macro-economic benefit to be able to purchase goods inexpensively.
Two issues –
1 Canada wants to add Great Britain as a NAFTA partner.
2. Things have changed drastically since original NAFTA was signed
Mexico now has wage rate less than China. (crazy but true) So, Asian jobs are onshoring to Mexico. We need to make sure that is positive for USA and not a negative.
The best thing to do is to get Mexico to buy more America products.
“The best thing to do is to get Mexico to buy more America products.”
They’re doing the best they can. They are sending their people across the border as fast as they can, they get jobs, get paid, and go to Walmart.