A letter from the new U.S. trade representative to Congress last week has started the 90-day countdown to reopening the landmark North American Free Trade Agreement — a prospect that should be of great concern to American businesses, workers and consumers.
NAFTA broke new ground when it passed in 1994, wiping away trade and investment barriers among the U.S., Canada and Mexico. But it has remained a source of controversy. President Trump, in particular, exploited its vulnerabilities as a candidate, telling voters that the agreement had sucked away U.S. manufacturing jobs and depressed wages.
The real story of NAFTA is more complicated. By creating what was then the world’s largest free-trade zone, it birthed myriad business opportunities, lowered prices for American consumers and strengthened ties among the three key nations. Canada and Mexico are this nation’s biggest trade partners, and Mexico has become an integral part of U.S. supply chains. Manufacturing losses can be traced not just to trade, but to mechanization that would have come regardless.
What’s needed now is a modernization of this agreement, not a wholesale jettison that could upend markets and trigger a trade war among neighbors. Fortunately, despite Trump’s earlier threats, U.S. Trade Representative Robert Lighthizer is quietly signaling a more rational approach that could improve NAFTA while maintaining stable trade relations. In his letter to Congress, Lighthizer outlined reasonable goals that include addressing digital trade — nearly nonexistent in 1994, but now a dominant issue. It would revisit intellectual property rights, regulatory practices, state-owned enterprises and even labor and environmental protections. Looser standards on those last two are thought to have spurred some U.S. companies to migrate across the border to maintain competitiveness. Export rules that disadvantage the small companies that are a feature of the U.S. economy could be eased.
Minnesota U.S. Rep. Erik Paulsen, a Republican free-trader and co-leader of the House digital trade caucus, said that after recently meeting with Lighthizer, he still has concerns but is heartened by the approach, which might even include reclaiming some of the better elements of the ill-fated Trans-Pacific Partnership, a broader trade proposal from which Trump did withdraw.
It has not been the signature of the Trump administration to date, but this is where a “win-win” strategy is badly needed. The coming months will require a firm but deft hand that can achieve U.S. objectives while allowing some gains for its partners. It would be too easy for recent tensions with Canada over cheap lumber imports that are hurting Minnesota timber, or protective pricing that hit Wisconsin dairies, to blow up the talks. Small companies still struggle against export rules that favor large corporations.
Paulsen should take a strong lead in upcoming negotiations. Minnesota imports 70 percent of its crude oil from Canada, along with significant amounts of natural gas and electricity. It exports $2 billion in goods annually to Mexico and twice that amount to Canada. Minnesota companies large and small rely on strong trade.
Tough discussions lie ahead, and the U.S. will not prevail in every instance, but skilled negotiators could do much to preserve and improve NAFTA, retrofitting it for the demands of a new economy.