America’s place in global trade is imperiled thanks to protectionist politicians, and the first step to fixing the problem is concluding a new trade deal with Mexico and Canada, a panel of experts said at an Economic Club of Minnesota event Tuesday.
“In trade, if you’re standing still, you’re falling behind,” said Tami Overby, an international trade consultant and former senior vice president for Asia at the U.S. Chamber of Commerce. “The rest of the world is moving. America, I’m sad to say, is falling behind.”
Recent progress on a long-awaited trade deal with Mexico and Canada, known in the U.S. as USMCA, has raised hopes that an agreement can be reached in the near term. But that would be only the first step in rebuilding trust in the U.S. around the globe, and the agreement’s chances of ratification heading into a presidential election year are rapidly dimming.
Without USMCA, the chances that President Donald Trump will be able to end the trade war with China are even dimmer, said Kevin Paap, the president of the Minnesota Farm Bureau.
“He won’t get anywhere with China without USMCA,” Paap said. “If I’m China, negotiating, why would I take anybody seriously that can’t do a deal with their two closest neighbors?”
Their comments, made during a luncheon attended by hundreds in downtown Minneapolis, came just hours after Trump signaled he felt no pressure to end the trade war with China and that he was willing to wait until after the 2020 election.
“I have no deadline,” Trump said on the sidelines of the NATO summit in London. “In some ways I like the idea of waiting until after the election for the China deal.”
In his first action on trade as president, Trump took the U.S. out of the Trans-Pacific Partnership, a hard-fought set of rules put together by 12 nations including the U.S. under President Barack Obama. Another panelist at Tuesday’s meeting in Minneapolis, Devry Boughner Vorwerk, a former top executive at Cargill, called that a grave error with long-term consequences. “I’m not being political here because neither presidential candidate in the last election supported TPP,” Vorwerk said.
She noted the deal would have governed trade for more than half the world’s population. Japan took the lead on recrafting TPP after the U.S. ducked out in 2017. More recently, Japan, China and other Asian nations signed a second regional trade deal called the Regional Comprehensive Economic Partnership.
That deal is less comprehensive than TPP, but it set uniform rules of origin that allow a product sold in one country to be sold in all of them. As a result, Asia will become “even more the center of the economic growth coming out of the next few decades,” Overby said.
Most people think of trade in terms of tariffs, said Overby, but what’s increasingly important in trade deals is the “behind the border” rules and standards governing what can be sold where. Those rules are being made without input from the U.S. in the fastest-growing markets in the world.
“That’s where the U.S. had been the dominant player, until we withdrew from TPP,” Overby said. “I’m deeply worried about the state of the World Trade Organization because in the absence of a rules-based system you have chaos, and in chaos, the biggest dog on the playground wins. We may be that big dog today, but we will not be that big dog for a long time. The Chinese are coming for us, people.”
Outside of Asia, skepticism toward free trade is a global phenomenon, said Ken Smith Ramos, who until a year ago was Mexico’s chief negotiator of USMCA and is now a trade consultant in Mexico City.
“One of the things that we’re witnessing worldwide is the tendency to go back to principles that in the past did not work, going back to a view of protectionism as a way to advance economic interests,” Smith Ramos said. “We’re seeing it from a Mexican perspective. We have seen it in the U.S. since 2017. We see it in the process of Brexit, where there was a perception that breaking away from the European Union was a good idea economically and politically. And we’re seeing it in other countries in the world. Even in Eastern Europe we see a tendency for the questioning of free market economics.”
In Mexico, while the benefits of NAFTA have not always been spread evenly, the benefits have been clear, said Smith Ramos. In 1993, when the deal was ratified, Mexico attracted $2 billion in foreign direct investment. In 2018, that number was $35 billion.
Whether the U.S., Mexico and Canada can agree on a new deal will depend on how hard domestic U.S. interests push for changes to it, said Smith Ramos. Whatever Congressional Democrats decide must be added to the agreement must first be taken back to Mexico and Canada for their approval.
“Most of the elements are there; I think we could be close to a deal, but certain wings of the U.S. unions, the AFL-CIO, are pushing actively for some proposals that push the balance of the agreement over the edge, basically establishing too many restrictions, or the possibility of having discretionary decisions by the U.S. on whether Mexico, for example, is complying with the labor provisions,” Smith Ramos said. “The labor provisions in the USMCA protect labor rights in a way that no other trade agreement has ever done, not even what the Democrats were pursuing in TPP. It went beyond that expectation. But the reality is that there are still some pockets, especially in the unions in the U.S., that just don’t really like trade agreements.”
Smith Ramos said it’s likely the deal won’t get done in 2019, and then in 2020 it will be more difficult because it will be a presidential election year.