NAFTA is Dead. Long Live NAFTA (and TPP)

Written by SK Ashby

As a midnight deadline for negotiations approached last night, Canada announced that it had reached an agreement with the United States and Mexico to more or less preserve the North American Free Trade Agreement (NAFTA) as it is.

The new agreement will not be called NAFTA, however, because Trump insisting on renaming it.

Although the overwhelming majority of the agreement will be identical to NAFTA, it will be called the United States-Mexico-Canada Agreement or USMCA if it's eventually adopted by all three governments.

As far as the Unites States is concerned, most of the changes to NAFTA could be described as cosmetic or inconsequential, but that is not necessarily true for our trading partners. Mexico and Canada, for example, were able to obtain protection from Trump's threat to impose tariffs on automobiles.

From Bloomberg:

The deal struck Sunday offers a measure of protection for both Canada and Mexico, ensuring each country won’t be affected by any auto tariffs unless exports top 2.6 million units annually.

For each, that represents their current exports plus growth of at least 40 percent -- enough to mean that if the tariffs are leveled against the rest of the world, they likely wouldn’t hit Canada and Mexico for a couple of years.

That may seem like a major concession on the part of the Trump regime because it is.

And it's not the only major concession Trump has made.

The deal doesn’t resolve the dispute over U.S. tariffs on steel and aluminum imports from Canada and Mexico -- or the retaliatory tariffs that each country placed on them. But going forward, it did give a guarantee that no tariff applied under the same U.S. law could be imposed against Canada or Mexico for at least 60 days.


Nafta had three kinds of dispute settlement systems. The new deal will see two remain basically unchanged, but renamed, according to senior White House officials. State-to-state dispute settlement -- formerly in Chapter 20 -- is being kept. It has many critics, particularly in the labor community, because panels often get blocked and disputes linger for years.

The old Nafta’s so-called Chapter 19 dispute-settlement mechanism -- which hears bi-national anti-dumping and countervailing duties cases -- remains untouched in the new agreement, the officials said. Canada dug in to save those.


The U.S. had demanded a sunset clause that would kill Nafta after five years unless the countries agreed to extend it. Few ideas upset the Canadians and Mexicans more than that. In the end, the countries agreed to a 16-year term for the deal, with a review to identify and fix problems and a chance of a deal extension after six years.

Now, we can't say the Trump regime got nothing out of the new deal, but we can say what they got wasn't exactly an original idea.

Canada has agreed to increase market access for American dairy farmers, but the funny thing about that is increased access was a key provision of the Trans Pacific Partnership (TPP).

The Obama administration had already spent years negotiating access to more markets under the Pacific Partnership before Trump unilaterally withdrew from the agreement soon after taking office.

Riding a wave of faux populist sentiment partially fueled by liberals and Democrats like Bernie Sanders, Elizabeth Warren, and several labor unions who all opposed the TPP for unsubstantiated reasons, Trump withdrew from a trade deal that would have effectively replaced NAFTA with a better deal that would have benefited all parties involved. The Trump regime is now using some parts of the TPP framework negotiated by the Obama administration to patch existing deals.

And to add an extra layer of irony, the Trans Pacific Partnership was explicitly pitched as a deal to contain the influence of China which has grown exponentially since Trump withdrew from the partnership and started a trade war.

To be clear, The North American Free Agreement (NAFTA) is still the law and it will be for at least the next year. The United States-Mexico-Canada Agreement (USMCA) must be approved by lawmakers in Mexico, Canada, and the United States. All three governments could look substantially different next year so it is within the realm of possibility that the USMCA will never become law just as the Trans Pacific Partnership never became law.