On Monday, August 28, President Donald Trump signaled his unhappiness with the progress of negotiations for a reworked North American Free Trade Agreement.
It has long been the President’s view that the United States allowed itself to be out-bargained when NAFTA was first created, and that he will either produce a deal more beneficial to the US, or he will pull out of the arrangement altogether.
On Monday, Trump told reporters, “I believe that you will probably have to at least start the termination process before a fair deal can be arrived at.” He was seconding his comments in twitter posts the day before. This set off a flurry of reactions on all sides.
One of the critical issues involves Canadian lumber. The U.S. industry has long complained that Canada “dumps” softwood lumber south of the border. The dispute arises because Canadian lumber mills pay low fees for trees they cut, largely on government owned land. Their U.S. competitors log largely on private land and pay higher fees – thus their complaint that the Canadians in the field are subsidized.
The timber dispute is subject to negotiations that are proceeding on a separate track from the three-party NAFTA talks, but the one subject hangs over the other.
Right Wing View
The politics of free trade in the United States don’t break down along right/left lines. The issue often seems, rather, to pit protectionists on both sides against the center. NAFTA itself was negotiated by first the Reagan and later the George H.W. Bush administrations, signed by Bush, then enacted into law at the insistence of President Bill Clinton. President Bush encountered opposition from his “right” within the Republican Party (notably from former Nixon speechwriter Pat Buchanan) and President Clinton encountered opposition from his “left” within the Democratic Party (notably from Missouri Senator Dick Gephardt).
In the spring of 2016, the free-trade oriented parts of the Republican Party opposed Trump’s campaign for their nomination. There was one heated exchange between Donald Trump and Senator Ted Cruz during a televised campaign that represents the intra-party (and intra conservatism) conflict quite well. The specific subject of the exchange was trade with China, though in principle it might have been Mexico or Canada.
Cruz said, “Donald … proposed a 45% tariff on foreign goods. The effect of a 45% tariff would be when you go to Walmart, the prices you pay go up 45%. A tariff is a tax on you.”
Trump replied, “The 45% is a threat. It will be a tax if they don’t behave.”
Trump, it appears, hopes to use tariffs merely as a threat. But if a threat is more than merely a bluff (and an easily-called bluff at that) it may well be a tax, and the tax as Cruz pointed out cannot be designed so that its bite falls entirely on foreigners.
Left Wing View
There is some reason to believe that, during the (Bill) Clinton presidency, Hillary Clinton was more of a Gephardt Democrat than a Clinton Democrat on matters of trade, and especially on NAFTA.
When she was running against Barack Obama, the question arose in some quarters: why didn’t she say so? Obama was courting the Gephardt Democrats, and Hillary Clinton might have found it useful to dissociate herself from her husband in this regard.
But as Ben Smith pointed out in Politico, she found it useful to associate herself with “the economy of the 1990s,” so it would have been awkward to say that she privately opposed such a critical economic-policy decision of the period.
In general the center-left position now seems to be one on which former President Clinton, former President Obama, and former Secretary of State Clinton would all agree: that Obama did renegotiate NAFTA in crucial respects, that he cut a god deal, and that the deal was supposed to be sealed by subsuming NAFTA into something broader, the Trans-Pacific Partnership. Trump torpedoed valuable fixes to NAFTA’s problems when he pulled the U.S. out of TPP – so runs the, or one, left wing view.
Further left, one gets to Bernie Sanders, who said (in the course of a debate with Secretary Clinton in the spring of 2016), “I do not believe in unfettered free trade. I believe in fair trade which works for the middle class and working families, not just large multinational corporations.”
Sanders didn’t believe that the TPP fixed the unfairness of NAFTA. He seemed to think the cure was worse than the disease.
That Canadian Lumber
A final word is in order about that darned inexpensive Canadian lumber. According to the National Association of Homebuilders, lumber accounts for between 10 and 15% of the materials costs of home construction, and the tariff that, the Trump administration believes, would level the lumber industry’s competitive playing field would also increase the price of an average one family home in the U.S. by $1,236.
Even talk of it (however much it may be intended as mere bluff) has pushed prices higher.
What is the proper punishment for a nation whose policies lower the price of homes for the residents of its neighbor and trade partner? Maybe a simple “merci”?