The markets liked the new trade deal with Mexico. The Dow Jones industrial average surged more than 259 points, or nearly 1 percent, on the news that President Donald Trump and his counterparts south of the border had struck a preliminary deal to replace the North American Free Trade Agreement.
The big question now is: Why all the enthusiasm?
The only plausible explanation is that investors took the announcement as evidence that Trump is somewhat less unreasonable than believed on trade matters. Because the arguments that this would be good for trade, or that it stands a reasonable chance of actually replacing NAFTA, stretch credulity.
The tentative agreement, announced by Trump in the Oval Office with outgoing Mexican President Enrique Pena Nieto on the phone from Mexico City, would impose onerous regulations on imports of Mexican cars and car parts that would drive up costs to American consumers and to a resurgent U.S. auto industry that is exporting 2 million vehicles annually.
That is the bad news. The good news is that this tentative deal faces daunting obstacles to reach enactment.
For starters, an enormous amount of work would have to be done on it before the end of November, when Pena Nieto steps down. This includes filling in a number of blanks with Mexico and concluding a deal with Canada.
Then there is the rather challenging situation the deal would face in Congress, where opposition would include pro-trade Republicans (assuming there are some left) and Democrats disinclined to support anything Trump is for.
Finally, there is the presupposition that undergirds the talks Trump has had with Mexico and hopes to have with Canada: that the president can simply scrap NAFTA if he doesn’t get a deal to his liking.
NAFTA, which was passed by Congress and signed by President Bill Clinton in 1993, stipulates that any of the three nations — the United States, Canada and Mexico — can withdraw after giving six months’ notice. But it does not state how this would be done.
In the United States, it does not appear that Trump could withdraw unilaterally. Congress enacted NAFTA and would surely want to be part of the discussion to withdraw from it. If it rolled over, as it has done often when faced with demands by Trump, any member could file a suit and would stand a decent chance of winning, given that the Constitution gives Congress the authority to “regulate commerce with foreign nations.”
To actually replace NAFTA, Trump would have to complete an actual replacement deal — not a partial deal with one country — in the next three months or start over with a new leftist government in Mexico. He would then have to persuade Congress to withdraw from NAFTA and approve the NAFTA replacement measure. Good luck with that.
In many respects, Monday’s announcement is like Trump’s summit with North Korean dictator Kim Jong Un. Both came amid much fanfare and bluster — and premature declarations of success.
No comments:
Post a Comment