Washington Wednesday: What’s next for the USMCA?

MARY REICHARD, HOST: It’s Wednesday the 27th of November, 2019. Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. It’s Washington Wednesday. Today, the U.S.-Mexico-Canada Agreement.

That’s the less-than-catchy name for the trade deal that’s supposed to replace NAFTA, the North American Free Trade Agreement. The new deal is called the USMCA. President Trump signed an initial agreement outlining the terms almost a year ago. It came during a summit with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto. 

Since then, the deal has languished in the House. And both the House and the Senate have to ratify the agreement before it can take effect.

REICHARD: Mexican lawmakers voted their approval in June. The Canadian parliament came close to giving its approval over the summer as well. That’s been delayed but soon to be taken up again. 

That just leaves U.S. lawmakers to take their vote.

EICHER: The White House had hoped to finalize the deal by the end of 2019. But time is running short. Joining us now to talk about what’s causing the delay is Derek Scissors. He’s an economist and a resident scholar at the American Enterprise Institute.

Good morning!

DEREK SCISSORS, GUEST: Good morning!

EICHER: So here’s where we stand. The president says USMCA is dead in the water. He said that on Sunday. The speaker of the House says she wants a done deal before the end of the year. 

But we should note that between now and the end of the year, I see only eight days on the legislative calendar, so that timeline seems rather a tall order. 

Do you know what the main sticking points are between Democrats and the White House?

SCISSORS: Well, I think for awhile—House Democrats have a right to ask for what they want before the put this up for a vote. And for a while they seemed to be focused on pretty specific issues having to do with how the U.S. would respond to failures by the other parties—Canada and Mexico, but especially Mexico—to fulfill their side of the deal. And that’s long been a concern with people about free trade deals that you sign the deal, the other side doesn’t do what it’s supposed to do, and then nothing happens. After months of talking to the administration, House Democrats are still saying, “Enforcement, enforcement, enforcement,” which is a very vague statement. So I think the original hold-up was legitimate issues. And the current hold-up is politics.

EICHER: It’s interesting that our top three trading partners are China, Mexico, and Canada. China is the number two economy in the world, measuring by GDP, and Canada and Mexico are pretty small economies, relatively, yet major trading partners for us. So a trade agreement with our neighbors seems really crucial. 

Talk about why the president felt the need to negotiate a new framework.

SCISSORS: Well, there are two reasons. The first one is NAFTA’s old. It’s 25 years old. It’s time for a new agreement. We didn’t even have e-commerce when we signed NAFTA. There’s a whole different way people trade and buy things now that didn’t exist. Lots of other changes and technology, other improvements that we realize we could have now that we didn’t in 1994. So, I think everyone who wants an agreement wants to update NAFTA. The president also has another goal, which is he thinks NAFTA has serious flaws. For example, in auto trade. So he saw an opportunity to both update the agreement, which would clearly improve it, and change it to make it more fitting with what he wants. And, in fact, both of those goals fit with what House Democrats want, but they still haven’t been willing to move forward.

EICHER: So what happens if it doesn’t get done by the end of the year?

SCISSORS: It’s very risky to let this go into an election year. Obviously people can come back and say, “Oh, right, a vote on January 6th. That’s not a problem. Why are you being so dramatic?” But when Congress comes back from recess, every recess every time—Republican or Democrat, Senate or House—they come back anti-trade because their constituents are angry about trade. And members of Congress who are in office, they don’t say, “Well, actually it’s my fault.” They say it’s somebody else’s fault. It’s usually the other party. But if it’s not the other party, it’s some other country. So, when you go away to recess, you have a problem with trade agreements. And when you go away to recess going into an election year, you have the other problem that none of the Democratic candidates have supported USMCA and if one of them pulls into the lead or if there are three of them that have outdistanced the others and they all say we hate USMCA, it becomes impossible at that point for Democrats to vote for it. So, the clock is clearly ticking. It doesn’t run out December 31st, but it very well could run out January 31st.

EICHER: Now, we’ve been talking about a trade deal with Canada and Mexico. And as important as that is, it’s not the trade deal getting the most attention these days: that would be some kind of settlement of the trade war with China. 

It seems fair to say many economists, business leaders, and, in particular, Wall Street seem much more worried about trade talks between Washington and Beijing. Are you among them?

SCISSORS: No, I definitely don’t think the China trade deal is more important. And it’s very strange to me that the stock market is so focused on China, not on USMCA. You already mentioned that Canada and Mexico are top two partners and China is third. But, of course, there are two of them so there’s twice as much or more than twice as much trade involved in USMCA as with China. More important than that, USMCA is a comprehensive agreement that if it passes the Congress will last for decades because it’s been a Republican and Democrat, administration and Congress all agreed. The China agreement in comparison to USMCA is just a little phase one ceasefire and maybe we’ll get to it later. Congress isn’t involved. The next president could reverse it. It’s smaller and it’s much more temporary. So, there’s been a lot of attention on Wall Street, you’re right, to the China trade deal, but that’s strange because in terms of our economy and ordinary people’s lives, USMCA is much more important. 

EICHER: Well, what do you think about that? Why is China a bigger priority on Wall Street?

SCISSORS: Well, to be honest—or blunt—I think this is the stock market being different from what’s good for the country. There are a lot of financial interests at play in the U.S.-China relationship that don’t really exist in the Canada and Mexico relationships. You mentioned that China is the second biggest economy in the world and Canada and Mexico are down the list. That means there are a lot of deals that can be struck with China because it’s so big. So, Wall Street, stock market, the financial community has a great deal of interest in U.S.-China. The rest of the country has much more interest in U.S., Mexico, and Canada. But that isn’t reflected in the stock market and it isn’t reflected in U.S. news coverage.

EICHER: Do you see any connection between delays in the USMCA and the U.S.-China trade talks? Are they related?

SCISSORS: Well, I think the trade talks are connected. I don’t think the delays are connected. House Democrats are dealing with internal politics within the Democratic party. That’s what the delay is about. But the trade talks are connected because it’s really hard for both of these to go well or both of these to go badly for President Trump. If they both go badly, it’s a hit to the stock market, it’s a potential hit to the economy. He looks like he can’t close a deal. He’s under a lot of pressure at that point. Even if they both go well, there could be a problem because someone might say, wait, you were supposed to stand up for American workers and here you are making deals all over the place. So, I would expect that the worse the odds are the better the odds are for the other, which sounds strange, but I think that’s the situation the president wants to be in in 2020. I made a deal, a great deal with one of these countries and I didn’t make the deal because it wasn’t good enough with another one of these countries.

EICHER: Derek Scissors is a resident scholar at the American Enterprise Institute. Thanks so much for joining us today!

SCISSORS: Thanks for having me.

(AP Photo/J. Scott Applewhite) The Capitol is seen at dawn in Washington, Tuesday, Oct. 29, 2019. 

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