For all the chatter (rancor?) over various deals with Iran and China, left almost completely unnoticed is that the soft deadline to present any changes to NAFTA has come and gone with nothing to show for it.
US legislators had set a May 17 target to allow Congress the time needed to OK a new deal this year. That date wasn’t picked out of thin air. The US Constitution bestows Congress with the power to regulate commerce with foreign nations (the so-called Commerce Clause). As such, President Trump can’t circumvent Congress and sign a deal himself. Instead, he must give Congress 90 days’ notice before he signs any agreements.
Then, thanks to the Bipartisan Congressional Trade Priorities and
Accountability Act of 2015, the US International Trade Commission must submit two reports to the House Committee on Ways and Means and the Senate Committee on Finance on the economic impact of the pending agreements. Once those reports have been digested, Congress will be facing a countdown to the January swearing-in of new legislators, at which point all bets are off.
Compounding the situation, Mexico’s presidential election takes place July 1, and the leading candidate is expected to replace Mexico’s negotiating team when he takes office in December.
While President Trump campaigned on rewriting NAFTA, the rush to tender a new agreement has stalled as priorities have shifted. Of late, the three sides spent weeks debating how to carve up the lucrative automotive supply chain, without success.
One look at a 2106 US ITC report crystallizes the impact of NAFTA, in particular, the key auto supply chain. Per the report
from 1993 (the year before NAFTA entered into force) to 2014, Mexican motor vehicle production increased from 1.1 million units to 3.4 million. Mexico’s share of NAFTA vehicle production increased to 19% from 8% during the same period. At the same time, Mexico became a more important automotive parts producer for the North American market. Mexico’s share of value-added content in North American final demand for motor vehicles, trailers, and semi-trailers from 1995 to 2011 increased to 9% from 4%, while US content declined from 63% to 43%.
According to the US Census Bureau, the US exported $243 billion worth of goods to Mexico last year, while importing $314 billion. Both totals are the highest ever with the southern neighbor.
The US does even more business with Canada, exporting $282 billion worth of products last year and bringing back $300 billion. While China is our single largest trading partner, combined our abutters make up 29% of our overall trade, which is considerably more than China’s 16%.
This week Reuters quoted US Trade Representative Robert Lighthizer as saying a deal was “nowhere near close.” The finger-pointing is starting in earnest.
None of this is good for businesses, which must make long-range decisions on everything from equipment purchases to plant locations to staffing. Whatever problem we are trying to solve, let’s hope it doesn’t cause a bunch of new ones.