Bipartisan support required for modernized North American trade agreement

Bipartisan support required for modernized North American trade agreement
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The Trump administration’s trade policies aren’t having their intended effect. Tariffs are blunt tools that never fix specific trade issues, such as China’s stealing of intellectual property. By creating (as with China) and threatening (as with the European Union) trade wars, Trump is harming the economy and vital U.S. security interests. It is hard for Washington to seek allies in the struggle with Iran while bashing them on trade issues. So much for an “energy dominance” policy when no one will buy U.S. oil and LNG while the U.S slaps tariff upon tariff on their traded goods.

We can change this negative dynamic with a deal between Republicans and Democrats to pass the US-Mexico-Canada Trade Agreement (USMCA). Continuing negotiations between House Democrats and the Office of the U.S. Trade Representative (USTR) underscore the importance of a robust pro-trade coalition of lawmakers from both parties.

Work has begun. Members of the Democratic working group provided USTR its first set of proposals before the August recess. USTR came back with its response “paper” last week. That will facilitate a new round of negotiations.

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House Democrats identified sticking points on labor, the environment and pharmaceuticals. Partisan differences exist over enforcement mechanisms. Left unresolved is that these disagreements could lead the Trump administration to withdraw from the existing North American Free Trade Area (NAFTA) pact. NAFTA termination would have damaging consequences for the U.S. economy and America’s energy and agricultural priorities.

Trade flows within the North American energy market show the mutual dependence our three nations share regarding oil and gas. Mexico is the number one market for U.S. gasoline, fuel oil and total refined products, while Canada is the number one market for U.S. crude oil and fuel blending components. US natural gas exports to Mexico have grown to 1,700 billion cubic feet (Bcf) in 2018 worth $5.5 billion. Overall, the U.S. gas and oil industry supports 10.3 million American jobs.

NAFTA’s passage in 1993 also increased U.S. agricultural exports to Canada and Mexico from $8.9 billion in 1993 to $39 billion in 2017. The new USMCA would add  $ 2.2 billion in agricultural exports to Canada and Mexico, according to the American Farm Bureau Federation.

These two sectors are critical to U.S. economic strength and contribute significantly to our success and growth. The administration’s unwise tariff policies have damaged U.S. agriculture interests in particular. US officials in the executive and legislative branches must focus on the prize: further integrating our markets via the USMCA will promote additional investment and trade while advancing North America business interests by locking in necessary business certainty for parties in all three nations. 

While economic facts hold water on their own, everything today is politicized. The longer this drama over USMCA continues in Congress and the closer we are to the 2020 elections, political tribalism will dominate.

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Bipartisanship between the White House and Democratic members will be crucial to getting the USMCA finalized. Interestingly, 55 current members of Congress voted on NAFTA in 1993. Of the 24 members who voted yes, 16 are Democrats.

Recent research from the Peterson Institute for International Economics shows that those  Democratic districts that rely heavily on free trade would stand to benefit from the USMCA. Democrats represent 21 of the 80 most NAFTA-reliant areas. These 21 Democratic districts have the highest share of exports to Canada or Mexico as a percent of total payroll firms pay in these districts.

Democratic thought-leaders support USMCA passage.  A recent report by Progressive Policy Institute – a think tank founded by Clinton-era Democrats – argued that lawmakers should “get to ‘yes’” on USMCA. The report’s author, Ed Gerwin, noted that USMCA would “modernize NAFTA in significant ways by, for instance, adding enforceable labor and environmental rules and new provisions to promote digital and small business trade.”

Democrats in Congress, specifically those who voted yes on NAFTA in 1993 and those representing districts with high shares of economic activity connected to Mexico and Canada, have much to gain from supporting passage of the USMCA. The administration would win by getting one of its signature initiatives approved.

Most important, Americans win. Much needed bipartisan support for free trade, energy security, and American workers and business people would be on display if Congress quickly passed the USMCA. Mexico has already ratified it. Canada will ratify it. The U.S. must now ratify it.

Ambassador (ret.) Richard D. Kauzlarich is distinguished visiting professor at the Schar School of Policy and Government at George Mason University.