Trump Administration Sets Top Goal of NAFTA Renegotiation: Cut Trade Deficits

USTR Lighthizer outlines key objectives as U.S. gears up to overhaul pact with Canada, Mexico

The United States will seek to reduce its trade deficit with Canada and Mexico and change the way trade disputes are settled as part of a renegotiation of NAFTA, according to a set of goals the administration released Monday.

The long-awaited notification kicked off a “Made in America” week at the White House and is a necessary prelude to negotiations to update the 23-year-old North American Free Trade Agreement.

“No longer are we going to allow other countries to break the rules, steal our jobs and drain our wealth, and it has been drained,” President Donald Trump said during remarks at the White House to highlight products manufactured in the U.S.

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Trump campaigned on tearing up or renegotiating trade pacts he considers unfair to the United States. One of his first acts as president was to formally kill the proposed 12-nation Trans-Pacific Partnership.

When NAFTA took effect in 1994, the United States had a trade surplus in goods with Mexico of $1.3 billion. By last year, that had turned to a $64 billion deficit. Balancing that would be significant, said Alan Tonelson, an economic policy analyst who writes the RealityChek blog.

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“That’s certainly new,” he said. “There are quite a few very encouraging objectives here that are very distinctive, positively unique for post-World War II presidents.”

U.S. Trade Representative Robert Lighthizer’s office also indicated that it wants to increase the percentage of manufactured goods that must come from North America in order to benefit from reduced tariffs. Those rules vary by industry. At least 62.5 percent of the parts used to make automobiles, for example, must come from North America.

Critics contend that the threshold is too low and allows overseas automakers to gain favorable access to the U.S. market by opening relatively low-end assembly plants with many components made in Asia.

The issue concerns some Mexican industries as well. Reuters reported last week that Asian parts comprise about 70 percent of the content in electronic goods exported by Mexico to the United States.

Kevin Kearns, president of the U.S. Business and Industry Council, said one of the original selling point for NAFTA is that it would allow Mexico to be a low-cost place to assemble American cars for export to the rest of the world. But that has not happened, he said.

“The thing to do with NAFTA, particularly with Mexico, is to figure out how to have it fulfill its original purpose,” he said.

Tonelson explained that as important as the percentages are the penalties for violating them. Currently, the treaty leaves it to each country to decide. Mexican enforcement tends to be lax, allowing Asian carmakers to exports cars from Mexico to the United States. NAFTA, he said, should mandate uniform penalties.

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“The standards have to have teeth,” he said.

The list of objectives also calls for a change in the way disputes among member nations are resolved. Currently, a NAFTA tribunal has the final word. But Tonelson said Lighthizer appears to be seeking U.S. trade courts to settle disputes filed in the United States.

Kearns said he has grown increasingly pessimistic about the Trump administration’s trade policies. He said such advisers as National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin come from Wall Street and do not understand manufacturing.

“The Trump administration does not have a trade policy that makes sense for the United States,” he said. “We need a full-fledged industry-technology policy, or strategy, for this country. (go to page 2 to continue reading)[lz_pagination]

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