Next week, the next round of negotiations between Canada, Mexico and the United States on the future of the North American Free Trade Agreement resume in Montreal. Rumors are swirling that if talks don’t go well, a frustrated Donald TrumpDonald TrumpJudge rules Alaska governor unlawfully fired lawyer who criticized Trump Giuliani led fake electors plot: CNN Giuliani associate sentenced to a year in prison in campaign finance case MORE may move forward with his threat to pull the United States out of NAFTA. That’s the doomsday scenario for the economies of all three nations.
NAFTA has more than tripled trade in the region to $1.2 trillion and the resumption of tariffs could put these exchanges in jeopardy. Just the hint of a U.S. exit from the trade agreement last week led to a selloff in Canadian and Mexican currencies. Financial experts believe that an American withdrawal could mean an overnight stock selloff of 5 percent or more, thus reversing some of the giant gains since the December passage of the Trump tax cut.
One major concern to American companies is the protection of intellectual property rights. This is a big deal for the U.S. economy because an increasing share of American output is in the form of invention, technological improvements, music, entertainment, software, and biotechnology breakthroughs that are protected through copyrights and patents. Intellectual property industries support 45 million jobs, or 30 percent of U.S. employment, producing more than $7 trillion of value added output, according to the U.S. Chamber of Commerce.
Pharmaceuticals are a prime example. The U.S. pharmaceutical industry supports 4.8 million American jobs and has a total economic output of $1.3 trillion in total value of goods and services. Pharmaceutical innovation is naturally key to improving and extending lives with new tests, treatments and cures. In 2016, U.S. biopharmaceutical companies spent nearly $90 billion on research and development. If they can't make profits from that investment, the cures will be delayed or won’t happen.
NAFTA was originally billed as one of the first trade deals ever to safeguard intellectual property that flows over national borders. That hasn’t been the case in practice. Canada’s patent protections have been weaker than ours and so the Canadian courts have invalidated some two dozen patents by American pharmaceutical companies, such as Pfizer.
While Ottawa has reversed some of the blatant abuses, Canada and Mexico are now imposing back door price controls on American breakthrough drugs. Under a new pricing proposal called “benchmarking,” Canada’s Patented Medicine Prices Review Board will consider a drug price “excessive” if it exceeds a median figure charged in other nations, excluding the United States. But as a humanitarian initiative, the United States often offers drugs at very low prices in poor nations that can’t afford the global market price. Canada and Mexico are not Botswana.
The negative impact of these intellectual property violations is easy to detect. Even though we invent and develop most of the world’s leading wonder drugs and vaccines, America runs a slight trade deficit with Canada and has almost no net trade surplus with Mexico. How did that happen? Loose protections of intellectual property hurts the U.S. economy in the short term — it is a form of international stealing from American workers and companies — but in the longer term, it hurts all three nations.
Canada is well on the way to becoming a global technology leader and increasingly depends on international copyright and patent protections themselves. Most importantly, securing legal safeguards for drug and vaccine developers is the best way to win the race for the cure for cancer, heart disease, Alzheimers, multiple sclerosis, Lou Gehrig’s disease, and other killer diseases.
This is critically important for future trade deals as well. China’s violations of intellectual property cost American firms tens of billions of dollars. Japan has imposed punitive price caps on breakthrough cancer and hepatitis treatments, prompting drug makers to reconsider whether to continue investing in clinical trials for new drugs in Japan. Getting NAFTA 2.0 right will position the United States to push back on this and other abusive trade practice.
Abandonment of NAFTA would weaken the entire North American region and shift global economic power to Europe and Asia. The Trump administration should not pull out of this free trade agreement. But the president should insist at the Montreal meetings that improving the protections of patents, copyrights and technology in a NAFTA 2.0 would go a long way to reaching a stable long term trade deal that would help make all of North America great again.
Stephen Moore is a distinguished visiting fellow at the Heritage Foundation, a consultant at FreedomWorks, and a senior economic analyst at CNN. He served as an economic advisor to Donald Trump’s 2016 presidential campaign. You can follow him on Twitter @StephenMoore.