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Trump’s NAFTA Policy: Breaking Up is Hard to Do

President Trump’s economic team and PR machine are excellent when it comes to softening the president’s economic words. However, in interpretation mode, what they are really doing is conveying the harsh reality of Trump’s inner meaning. Just the other day, they serendipitously dropped the NAFTA bomb, while indicating what most D.C. insiders were anticipating. The United States wants to go bilateral, thus reversing an arrangement that was trilateral. Oops, the cat just jumped out of the bag, there goes NAFTA–right down the drain.

Trump followers have seen this thought-speak trend before. The economic team has quickly become the advance group for the Trump-trade doomsday machine. As they were attempting to soften the blow on the China Section 301 tariffs, they treated it like a weather forecast, downgrading a category five hurricane to a tropical storm. Tariffs went from trade war to trade dispute to trade discussion to family argument.

That’s all well and good, but the June 15 tariff release date has arrived, and the Trump team released the list of products to be hit with the China 301 tariffs,, so we all need to be aware that sometimes they are just putting a cloth on top of the nail, before it gets hit by the hammer.

In terms of the NAFTA discussion, the rhetoric was dropped in musical style by delivering it in sync with the legendary singer Neil Sedaka, who recorded “Breaking up is hard to do.”

Now I know

I know that it’s true

Don’t say this is the end

Instead of breaking up I wish we were making up again

Make no mistake, President Trump is on a pathway toward breaking up NAFTA.

His concept is that it will be easier for the U.S. to deal directly with Mexico and directly with Canada, and that by doing so he will have an easier path toward consensus. He thinks this is a better way to reach a better deal but, truth be told, the negotiations are failing right now and this bilateral/trilateral dialogue is just a distraction from the root problem, which is America’s inflexibility to resolve the talks.

The problem is that Trump is playing with fire. What started out as a campaign promise and then morphed into a discussion about updating, modernizing, and “causing no harm” to NAFTA, has eclipsed into a headbutting argument that could be too difficult to resolve (unless the U.S. backs off on some of its demands).

The prime issues with Canada are really related to dairy and intellectual property. The prime issues with Mexico are autos and labor. Some of the U.S.’s demands that have become negotiating thorns are the idea of a sunset clause, the amount of USA content, and the issues of Investor-State Dispute Settlements (ISDS). The issues for the apparel and footwear industry are more centered around not changing the deal dramatically, not altering the amount of U.S. content, and preserving a system that generally works.

After the blow up in Canada at the G7, who knows how the NAFTA talks will evolve. We have participated in seven formal rounds of meetings, and negotiators have been working hard for several months. The Congressional calendar is not working in NAFTA’s favor, and Mexico is due for an election. All things considered, in the short term, there is probably a greater chance that Mexico or Canada will withdraw from the talks, than that a new deal will be launched.

Trump may want NAFTA to fail, but seems to forget that Canada is the United States’ No. 1 export partner and Mexico is our No. 2. His idea of winning the battle, is blocking the idea of speeding the flow of commerce. Roughly 3.5 billion dollars of product does cross the border every day (in both directions) and that’s a big number that requires some serious respect.

So, with clear Trumpian logic, perhaps we should let NAFTA fail. We can then watch the news cycle fill up as our farmers go crazy, our auto-makers break their supply chains, our textile mills lose their apparel makers, and overall prices rise. Soon our national tax break will become a distant memory, as our economy launches into massive inflation–along with rising prices for apparel and footwear.

Also, don’t forget about the 14 million U.S. jobs that depend on a successful NAFTA. Good negotiating.

Don’t say this is the end

Instead of breaking up I wish we were making up again

 

Helfenbein is President and CEO of the American Apparel & Footwear Association and is a strong advocate for a robust U.S. trade agenda. He lectures frequently about politics and international trade and has appeared on CNN, CNBC, FOX, BBC, & BLOOMBERG. Follow him on Twitter @rhelfen

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