Maybe President Donald Trump has learned a better way to make deals in Washington: Negotiate instead of walking away.
Or maybe opponents have figured out how to sway the president: Present a strong united front with business and political leaders from across the spectrum.
On Aug. 27, Trump and officials from Mexico announced a breakthrough in trade talks that paves the way to refresh the North American Free Trade Agreement.
Many details are unclear and the process still faces a public review and congressional approval. And Canada, a partner in NAFTA, remains on the outside as Trump continues to feud publicly with the longtime ally.
But progress with Mexico is something to celebrate and should be a great relief to investors, workers, companies and state leaders.
Texas benefits immensely from trade with Mexico and Canada. They’re our top export markets, and NAFTA helped make Texas the No. 1 exporting state by far. Exports supported more than 1 million jobs in Texas in 2015, according to government estimates.
Trump campaigned as an opponent of existing trade deals and a harsh critic of Mexico. In addition to calling for a border wall, he said NAFTA was a disaster and America’s worst-ever trade deal. On Monday, he said NAFTA would have to be renamed because it had “a bad connotation.”
Trump frequently talked about ending it -- in the same way he threatened to leave other multilateral pacts. Since taking office in 2017, Trump has pulled the US out of the Paris climate accord, the Trans Pacific Partnership trade deal and the Iran nuclear agreement.
So his threats on NAFTA created great uncertainty.
“The best thing that happened is we didn’t blow it all up,” said Christopher Wilson, deputy director of the Mexico Institute at the Wilson Center in Washington.
The US clearly would have been worse off without NAFTA because the deal has such positive economic effects, Wilson said. Supply chains and manufacturing have been tightly integrated among the three countries, especially in the auto industry. After more than 20 years, NAFTA was overdue for an update. But many, including Texas politicians, pressed the government to not abandon it.
“The United States society turned up enough pressure to make sure that didn’t happen,” Wilson said. “Business groups, farmers, communities around the borders -- they all turned out to defend NAFTA. That’s the real win here.”
But there are still so many variables, he said, that it’s too early to predict whether the new rules will benefit the US or Mexico.
There could be positive effects for US workers, at least in the short-term. The preliminary deal requires a portion of car manufacturing jobs, 40 to 45 percent, to pay at least $16 an hour. That’s another way of requiring some work to be done in the US (or presumably Canada), where wages are higher.
Setting a minimum wage in a trade deal is heavy handed, said James Hollifield, a professor and director of the Tower Center at Southern Methodist University. And such micromanaging can backfire.
“Anytime you impose those costs, consumers will pay in the end -- probably in higher prices for autos,” Hollifield said.
The new deal also would require that 75 percent of content be manufactured in North America if the vehicle is to avoid all tariffs. Currently, the threshold is 62.5 percent of content.
In theory, that should promote more production in North America, unless carmakers decide it’s too expensive to conform to the rules. They could manufacture elsewhere and live with the standard tariffs.
“It’s not the US or Mexico anymore, it’s all one giant factory,” said Raymond Robertson, who teaches international economics at Texas A&M University and has studied NAFTA since it was adopted. “Raising the costs of production makes it harder to compete.
“Short-term, it may give a boost to US jobs,” Robertson said. “But long-term, the worst case scenario is that Factory North America becomes much less competitive.”
Over the next several months, industry players will study the details. They’ll try to determine whether the deal would lead to more investment and more competitive products -- or discourage expansion.
Some key chapters from NAFTA appear to be included in the new agreement, said Earl Anthony Wayne, a longtime diplomat and former US ambassador to Mexico. They include ways to settle disputes among the three countries and among investors.
One of Trump’s objectives was to increase production by US workers. To evaluate whether that would happen, companies and industries must speak out, he said. Wayne expects a long public discussion that will benefit everyone.
“We need to hear from the auto companies and not just the big three,” Wayne said. “The auto parts makers, the trade associations and others have a big stake in this, too. They’ll start sharing things with us, and we’ll learn from them.”
At this stage, it’s unclear how much progress was made on some thorny trade issues of the 21st century, such as intellectual property, online sales and government contracting. And there appears to be no progress on immigration reform, a divisive issue with enormous economic consequences for Texas.
The state’s growth has depended on immigrants, both international and domestic. And Mexico has often provided the fuel for Texas’ economy to consistently outpace the nation’s.
“This is incrementally positive,” SMU’s Hollifield said about the trade deal. “But it’s so far from where we really need to be that it’s hard to see it as a big step forward.”
Mitchell Schnurman Mitchell Schnurman is a business columnist for the Dallas Morning News. -- Ed.
