President Donald Trump has called the North American Free Trade Agreement "the worst trade deal" ever signed by the United States. After threatening to withdraw from the agreement this week, he has announced that he will attempt to renegotiate it instead. The pact can be improved in ways that will help working people throughout the hemisphere, but to do so, Trump needs to rethink his priorities for trade negotiations.
Growing trade deficits with Mexico have eliminated nearly 700,000 U.S. jobs since NAFTA took effect. And the movement of jobs to Mexico has not contributed to rising living standards in either country – competition with low wage imports has reduced wages in the United States, while Mexico's poverty rate was higher in 2014 than it was 20 years earlier, when NAFTA started.
The growth of China and its soaring global trade surpluses are the common factor which has hurt workers in the United States, Mexico, and Canada. Growing China trade deficits eliminated 3.4 million U.S. jobs between 2001 and 2015, and both Canada and Mexico had large trade deficits with China as well in 2015. Thus, one of the keys to making NAFTA work better for workers throughout the hemisphere is to rebalance trade with China and other big surplus countries such as Germany, Japan and Korea. There are also important ways in which NAFTA can be improved, but that is not likely to happen given the priorities of this administration.
One important policy change that could reduce trade deficits with China and other unfair traders is to raise the share of goods which must be produced within North America in order to qualify for duty free treatment, which are especially important for autos and parts, two of the most important industries in NAFTA trade. Under NAFTA "Rules of Origin," at least 62.5 percent of cars must be made in North America to qualify for duty free treatment. That threshold is even lower for parts, under the "deemed originating" threshold, which allows components that meet NAFTA content standards to be treated as 100 percent originating.
Under these rules, nearly 40 percent or more of vehicles can originate in China, Japan, Korea or other countries and still qualify for duty-free treatment. This hidden backdoor in NAFTA increases the trade deficits and job losses of all three countries with China and other unfair traders.
Trade negotiators should increase the threshold for NAFTA treatment, eliminate the "deemed originating" standard and close other loopholes to prevent other countries from using NAFTA to get around fair trade laws and standards. Doing so would reduce trade deficits, increase employment and benefit workers in all three countries. But this will be opposed by auto companies, who want to maintain access to cheap imported parts. NAFTA tilted the playing field in favor of big businesses throughout the hemisphere. Is Trump ready to level the playing field in ways that help workers?
NAFTA has also encouraged a race to the bottom in wages and environmental standards. These were the subject of weak side agreements negotiated after the NAFTA deal was done, and are not enforceable with trade sanctions, as is the rest of the agreement. In addition, Mexico has some of the most abusive labor law and practices in the world, and is infamous for its "protection" contracts – agreements between employers and employer-dominated unions, typically negotiated and signed without the knowledge of rank and file workers on the shop floor.
If Trump really cares about workers in the United States, he should start negotiations by demanding that Mexico end these abusive practices. He could help by offering to agree to endorse the International Labor Organization's core labor standards, including the freedom of association and the right to collective bargaining, which the United States has failed to fully endorse. Also, measures to effectively protect clean air, water and other natural resources should be included in the core of the agreement and be enforceable with trade sanctions.
However, given that Trump has taken numerous actions in his first 100 days to roll back protections for workers' wages, safety and health, it seems unlikely that he will seek to revise NAFTA in ways that help workers in the United States or Mexico.