Wednesday, August 29, 2018

Is the NAFTA Deal Only Trump Theater?

By Roy C. Smith

Donald Trump announced last Monday that at a Mexican trade deal had been agreed and Canada, our second largest trade partner after China, had until Friday to get on board or be left out. Trade deals are hard to analyze unless you can get deeply into the weeds, but the essence of this one seems to be to favor auto workers in both countries whose wages would increase, and to require more car production in the US.

Mr. Trump had previously led us to believe that the NAFTA renegotiations had been put off until after the mid-term elections. The surprise announcement seems to have been driven by the need to get the deal signed by the unpopular Mexican president Enrique Peña Nieto before his successor, socialist Andrés Manuel López Obrador, takes office on Dec. 1, 2018.  

The original NAFTA deal, proposed and developed by George H. W. Bush but supported and rammed through by Bill Clinton, was more popular with Republicans than Democrats. It was a free trade proposition in which overall trade would benefit but some industries, like autos, would probably lose jobs. Most economists looking at the 25-year old agreement believe NAFTA has been a net positive contributor to US economic growth. This deal, however, reverses direction, favoring one industry at the expense of overall economic growth. The Financial Times said it would be destructive of longstanding supply chains of major car companies that would lead to higher cars prices, which might work to the advantage of European and Asia car manufacturers selling in the US.

It is not at all clear that the Canadians can accept the terms presented as a fait accompli by Friday, which would effectively terminate NAFTA unilaterally by executive order.

The Canadians may come up with some sort of fudge to get by the Friday date, but the Trudeau government has strongly objected to the revised dispute resolution provisions of the new agreement that weakens Canada's ability to resist unilateral tariff changes made by the US, such as the newly imposed tariffs on steel and aluminum. Gains to the US from the Mexican agreement would be minimal, but Canadian trade and investment would be stymied by tariffs, confusion, disputes and a political disaffection that could take years to rectify.

So, is this it? Will trade policy by executive order stand, or will checks and balances render Monday’s announcement meaningless?

Well, the North American Free Trade Agreement was not established by executive order in 1993, it was incorporated in a statute passed by Congress in accordance with provisions in the US Constitution granting Congress express authority to establish tariffs and regulate commerce with foreign nations. According to Senator Pat Toomey (Republican from Pennsylvania), “a president can no more repeal NAFTA than he can repeal ObamaCare or create a new NAFTA without Congress’s approval.”

Further, existing law requires the president to notify Congress 90-days in advance of signing any trade agreement. Friday, by which time the Canadians must adopt the revisions or be excluded, is 90-days before December 1, when President Lopez Obrador takes office in Mexico. Obrador, has been neutral on NAFTA so far, but could easily find fault with it if it ends up on his desk to be signed.  

By Dec 1, the 2018 mid-term elections will have been decided, with a new Congress to be seated on Jan. 1, 2019, which many observers believe will increase the number of Democrats in the House of Representatives, if they don’t end up controlling it.

Even though the revised NAFTA plan would satisfy some labor unions, it is highly unlikely that Democrats in the House would vote for it if it came to a vote before Jan. 1. There are only eight days when the House and Senate are scheduled to be in session from Dec. 1 to Jan. 1. Mr. Trump may be able to force some Republicans in the House to vote for it, but it is questionable whether there would be enough Republican votes to get it done without Democrat support. Nor is the departing Speaker of the House, Paul Ryan, likely to be willing or able to get such a vote through. And, the Republican majority in the Senate is too small to cover for dissenters like Sen. Toomey to pass a bill, assuming the Democrats did not invoke the filibuster rule requiring 60 votes to pass.

If Congress fails to act and Mr. Trump signs the agreement, with or without Canadian participation, it will not be long before a federal court rules that it is unconstitutional and must make its way to the Supreme Court. Until it does, the agreement cannot go into effect. If it gets to the Supreme Court, the more conservative members in the majority are unlikely to take the view that the powers clearly granted to Congress by the Constitution are to be set aside in favor of the executive branch.

Surely Mr. Trump knows all this. The odds of getting the deal he announced through are very low. So, why did he do it this way? It can only be that it’s an effort to influence the mid-terms to get his base excited and vote to maintain control of the House for the remainder of his term.  But even if he does preserve his majority in the House, he is still constrained by the checks and balances put into the Constitution to restrain excessive executive power.

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