USMCA the new NAFTA

The new agreement requires at least 70 percent of an automaker’s steel and aluminum to be bought in North America, which could help boost United States metal production. And 40 to 45 percent of a car’s content must be made by workers earning an average wage of $16 an hour. That $16 floor is an effort to force auto companies to either raise low wages in Mexico or hire more workers in the United States and Canada, an outcome Democrats have long supported.

It also rolls back a special system of arbitration for corporations that the Democratic presidential candidate Elizabeth Warren has criticized as allowing companies to bypass the American legal system and Trump administration officials describe as an incentive for companies to send their factories abroad.

The pact also includes, at least on paper, provisions that aim to do away with sham Mexican labor unions that have done little to help workers by requiring every company in Mexico to seek worker approval of collective bargaining agreements by secret ballot in the next four years.

That is from a week ago, supposedly the actual deal with be somewhat more interventionist and anti-trade than that.  Here is more from Ana Swanson and Emily Cochrane of the NYT.

Comments

Surely a free trade agreement means more free trade, not less.

Indeed, this is Orwellian in its language. No country needs to have a "Free Trade Agreement" it is an oxymoron. There was a good understanding of this in the 19C, when the UK Liberal party advocated free trade as a progressive policy on the basis of lower costs for consumers and reduced protection of business owners. We seem to have lost that understanding, even to the stage where leaving a trade block (the EU) is being described as turning away from free trade!

Not "needed" (unilateral reductions in trade barriers is better than none) but it's certainly better if any amount of trade restriction that one country does is matched by those of trading partners.

And politically multilateral and multisectoral negotiations barriers is a clever idea as it brings those interested in freer trade into the negotiation and helps overcome the political problem of the costs of reductions being more visible than the benefits.

Not really necessary, trade negotiations are always about benefits for rich established elites vs the general population. But the rich established people have control of the media so you rarely hear that side of the story.

If tomorrow every college in America fired all American professors and hired cheap foreign labor to do the job THEN Tyler might finally understand why "free trade" will destroy us.

I rather think that anyone capable of competing for Tyler's job already has a good position elsewhere. Being an economics professor is not a sinecure that someone with no training or experience can do. So as long as someone cares about the quality, Tyler's job is safe, even if the US was opened wide up to free immigration to the entire world.

I could tell that you sincerely believe that. A naïve belief but a true one for you. Please go explain that to Disney's fired IT people.

'even to the stage where leaving a trade block (the EU) is being described as turning away from free trade!'

Let us know what the UK car industry thinks about how silly it is to talk about leaving the EU as being a rejection of free trade after Brexit.

At least those parts of the UK car industry that survive Brexit.

Assuming you are right and the only reason the UK car industry exists is because of the EU protectionism, then in the long run the UK is better off with economic sectors in which it has a comparative advantage. But I doubt you are correct, the UK is a bigger corn producer despite the repeal of the corn laws.

'and the only reason the UK car industry exists is because of the EU protectionism'

Well, definitely the part of the UK car industry that is owned by the Japanese. It isn't as if the reason why the Japanese set up in the UK was obscure when it happened - and yes, it was due to fairly explicit EU protectionism. That the quotas were called voluntary was just a way of being polite.

'in which it has a comparative advantage'

The largest single employer in the UK is the car industry - any idea what those workers are supposed to do instead? Because they are unlikely to be building many cars for export to the EU in a year or two - which is where more than 50% of the cars exported by the UK are sold. Want to guess how much of UK auto production in total is exported? 80% is a nice round number that happens to be accurate. Admittedly, production has been slipping since 2016, though for some, the reason why that is undoubtedly mysterious.

This is leaving aside what PSA (or possibly Fiat Chysler, with all the merger talk) is likely to do with Vauxhall - which just happens to build basically the same cars as Opel, both being former parts of GM with shared platforms. And the Japanese have been fairly clear - at least for the Japanese - that they will not be investing more in auto production in the UK.

Luckily, we need not speculate - the statistics will be available in a few years.

^ Exhibit A of the mental gymnastics people must engage in to reconcile their Trump support with their prior stance on trade.

Hazel, I hope that is not directed at me.

I may have partly mistaken your meaning, but you seem to be saying that the UK would be in a more free-trade environment outside the EU. However, you may be forgetting that tariffs on imports INTO the UK from Europe would also increase, since the EU reduces trade barriers between member states. The UK would then have to fight a domestic political battle to unilaterally reduce tariffs on European imports, which is significantly harder to do than just remaining in the agreement. They would not be in a net freer trade regime, so there's no reason to think that they would find a more natural comparative advantage.

It's clearly mental gymnastics to claim that the UK most be part of a protectionist body in order to promote "free trade". Yes the trade barriers may be lower, but if the requirement is being a member of the EU, that's not free trade. That's a quid pro quo. Which obviously has a cost and ergo is not free trade.

What's the cost associated with being a member of the EU?

I'm no fan of Brexit, but are you kidding?

Hazel, first I am not and never have been a Trump supporter. In fact I don't support any politician, I support policies. I think identifying yourself with a particular politician is a crazy idea since their motivations, ethical drivers and ideas may partly intersect with your own but never will be the same. Politics is not showbusiness.

Also you said " that tariffs on imports INTO the UK from Europe would also increase" - I believe the UK Government has indicated only limited tariffs on some food imports, same as the EU has at the moment. Overall my understanding is that import tariffs will significantly decrease after Brexit, so in the direction of free trade, which I favor.

According to this: https://www.washingtonpost.com/business/how-would-the-uk-trade-after-a-no-deal-brexit/2019/10/16/e24776f4-f02a-11e9-bb7e-d2026ee0c199_story.html

... trade in both directions reverts to WTO rules, which means higher tariffs on certain goods in both directions. I am not aware of any areas where tariffs would decrease. The UK would also lose access (in both directions) to other markets that have preferential trade deals with the EU.

Of course the UK might strike up it's own independent trade deals with others, but that certainly won't happen immediately, if at all.

Hazel - you are not even reading your linked article - did you see where it says that 87% of goods being imported will be tariff free. WTO rules stipulate maximum tariffs not minimum.

Here is a good summary;
https://www.bdo.co.uk/en-gb/insights/tax/corporate-international-tax/no-deal-brexit-government-releases-tariff-with-details-of-customs-duty-rates
Quote: most goods will be subject to a nil duty rate, ie no customs duty will be payable. It should be noted however, that not all tariffs have been reduced and there are still a number of products that will remain subject to duty.

Of course there are still some tariffs left, like on cars, but leaving the EU is without doubt move towards freer trade.

That article I believe refers to changes relative to what would be the case in a no-deal brexit. So tariffs are to be reduced relative to the levels they would rise to with "hard Brexit". It doesn't say they would be reduced relative to what they are now as an EU member.

However, I'm glad that we're on the same page with respect to whether an overall lower tariff regime is better. We're just disagreeing over a factual issue - whether tariffs would generally rise or fall after Brexit.

Not it is the tariffs that will apply if Boris’s deal passes, which is not a no deal scenario.

Free trade is not about free trade - it is about increasing profits for those in a position to profit from whatever agreements are made.

No that is the opposite of free trade. Free trade means established businesses have to compete harder, as anyone can supply the market, rather than extracting monopoly rents as in the non-free trade case. More competition means lower prices for consumers at the expense of the profits of the manufacturers. This increases overall welfare at the expense of the owners of these manufacturers. They understood this well in the 19C but for some reason we have lost this today and everyone thinks this is some kind of radical idea.

Well, that sounds terrible.

More reason to buy a foreign import vehicle or a Tesla instead of overpriced junk Trump is making us buy.

Hahahahaha. Tesla = subsidies. Sometimes cheap is expensive.

Either that or legislate the metal contents of your car. Better 'sometimes cheap' than always expensive.

Thankfully the labor rules are completely unenforceable, and Mexico has already balked at the suggestion that American/Canadian inspectors would be allowed access to Mexican factories. So $16 an hour on paper will be just that - on paper.

Unions are a symptom of tight labor markets, not a cause, so no worries there. Mexican unions will continue to be irrelevant.

The USMCA is stupid and unnecessary but the only real effect will probably be a further increase in corruption in Mexico. Now they will have to bribe local officials even more, this time to verify fake $16/hr wages.

Meh

Businesses should never be forced to depend on employers putting money in consumer pockets!

Governments must be the ones that puts more and more money in consumer pockets to drive up business profits!

The problem is Mexico and Canadian governments are not putting enough money in consumer pockets so the people can afford to buy high priced US branded goods produced in Chinese owned factories in Asia and Africa! Or to travel to Trump resorts where they buy Trump branded goods made in China.

Not one sentence in your comment is even remotely coherent.

Maybe Navarro will hire you as a trade negotiator.

Wasn't there a comment pointing out that the organizations best suited to check worker wages are the car companies, whose power over their suppliers is close to boundless? Government corruption can be easily avoided that way, if imperfectly. Much in the fashion that a company like Nike does, so as to not use companies that employ children in factories.

(Note to the site mods - letting people know what is and what is not acceptable could reduce the workload, per Metafilter SOP.)

So, pretty much how the EU looks at things then - level playing field, and ensuring that the playing field is always tilted in favor of the EU. Which, come to think of it, if how just about every country handles 'free' trade.

Lucky for the UK that they will be leaving the EU, and can start paying UK autoworkers Mexican wages.

Well, assuming there is much of a British auto industry to be paying anyone's wages after Brexit, that is.

Thankfully for most motorists the UK car industry is not going anywhere, the average North American will remain free of having to drive a British car. Though paying Mexican wages for truly sub Mexican quality work may be a genuine path forward.

'Thankfully for most motorists the UK car industry is not going anywhere'

Well, parts owned by the Japanese and the Germans are planning to or announcing that they are leaving the UK, because it is much easier to sell cars made in the EU within the EU.

For somebody who is supposedly not pro-choice, why does Trump serve up this legislative abortion?

The modifications have added bad ideas from both parties. This "agreement" should die a natural gridlocked death.

Comparative advantage was easier to defend when our advantage was skilled labor and their advantage (we called them less developed countries, or LDCs, back then) was raw materials. Over time costs including labor costs will converge, but until they do, expect continued tension between developed countries and LDCs. One would like to believe that we still have the advantage in producing goods that require lots of skilled managers and labor, but management seems to be squandering that advantage. https://www.nytimes.com/2019/12/09/business/boeing-737-max-whistleblower.html

So much for the argument that Trump really favors freer trade and is only using tariffs as a means to achieve it.

I have also heard Trump is in favor of fighting corruption.

Wonder how many nights the Saudis have recently booked at his trademark hotels.

That is not a charge I'd lay at Trump's feet. His business interests would certainly have been better served if he'd never run for president -- I'm pretty sure he's poorer for it. Something that definitely can't be said for nearly all other high-level U.S. pols who mysteriously, but very consistently become vastly wealthier despite the modest official salaries.

If he's so rich, why do he and Giuliani act so poor all the time?

Dudes worry more about making their next buck more than I do.

An extra "more" there.

But wasn't that Trump's Moscow deal exactly the sort of project he'd been doing for years/decades before he ran for president? I'm certainly not suggesting Trump's uninterested in making money (his whole career says otherwise), I'm saying he didn't run for president to make more money, nor has becoming president made him wealthier.

Trump has long been doing deals where what he contributes is basically just his brand (and much of his net worth lies in the intangible value of that brand). Before the presidential run, He was a Democratic donor and friend of the Clinton's (Chelsea and Ivanka used to be besties). And the Trump brand stood for a Vegas-style, gold-plated-toilet sort of luxury. It was viewed as tacky by many but not toxic. Now, for half the populace, the Trump logo is like waving a red flag in front of a bull. I don't think there's any way that the value of his (now highly controversial) brand for hotels and resorts and such has increased.

'His business interests would certainly have been better served if he'd never run for president'

I pretty much agree, which leads to an entirely different discussion about America's very stable genius in chief and his motivations. However, a native of NYC I know believes that anyone involved in NYC real estate is so thoroughly corrupt(ed) that talking about Trump (or any other NYC real estate mogul) being corrupt is like saying Trump and his real estate compatriots breathe air.

'who mysteriously, but very consistently become vastly wealthier despite the modest official salaries'

As most conspicuously seen by Reagan, who broke the mold on cashing in on the presidency. This was, at least at the time, considered the sort of thing that only Regan could have gotten away with, even if his image took a hit - the article is almost 3 decades old, so adjust the amounts accordingly.

"At sunny resorts from Palm Springs to the Bahamas, where he spent his birthday Feb. 6 as a luncheon speaker for Sara Lee Corp., Reagan does “a couple or three a month” of these unpublicized Fortune 500 appearances, Weinberg says. Reagan is grossing as much as $1.8 million a year from this source alone."
...
"For the Great Communicator, whose standing plunged hen he accepted the speaking honorarium from Japan’s Fujisankei communications conglomerate last October, the main impression to be overcome is that he has been inappropriately cashing in on his eight-year presidency."
...
"Reagan circled Washington’s monuments aboard Marine Corps One for the last time on Jan. 20, 1989. Only three weeks later, while a friend, Holmby Hills venture capitalist Charles Z. Wick, was negotiating the $2-million deal with Fujisankei, the fledgling former President was addressing Coca-Cola and McDonald’s executives at conventions in Laguna Niguel."

https://www.latimes.com/archives/la-xpm-1990-03-04-tm-2327-story.html

However, a native of NYC I know believes that anyone involved in NYC real estate is so thoroughly corrupt(ed) that talking about Trump (or any other NYC real estate mogul) being corrupt is like saying Trump and his real estate compatriots breathe air.

But I would not limit that to real-estate in particular. I'd say that anybody involved in New York politics or business of any kind (profit or non-profit) at a high level has been thoroughly marinated in a world where buying, selling, and trading of influence and favors is absolutely routine (and arguably indispensable to get anywhere in the culture that is New York). I thought the same about Obama emerging from the Chicago/Cook County political machine.

As most conspicuously seen by Reagan, who broke the mold on cashing in on the presidency.

Most conspicuously? Did Reagan also invent the personal-foundation-as -a-means-of-selling-influence-and-hiring-your-friends-and-family that the Clintons used so successfully? At this point, there's no presidential candidate with a chance to win who hasn't engaged in some of the now standard huge-speaking fees / bogus academic appointment / book advance / lobbying / no-work corporate job / personal foundation B.S. Even 'poorest man in Congress' Joe Biden managed to rack up $15 million in such income in a short space of time after leaving the vice presidency.

'But I would not limit that to real-estate in particular.'

Well, neither would she, but apparently (to her at least) real estate involves a certain inevitable nexus between the mob and politics, to the extent that real estate people swim in a sea of corruption, which they take as much advantage of as possible..

'Did Reagan also invent the personal-foundation-as -a-means-of-selling-influence-and-hiring-your-friends-and-family that the Clintons used so successfully?'

Reagan was the first modern president to thoroughly cash out. After him, it takes more than simply earning a few million dollars per year from foreign and domestic sources, as that became routine. The foundation dodge was simply a further effect of the flood that Reagan's dam busting unleashed.

'there's no presidential candidate with a chance to win who hasn't engaged in some of the now standard huge-speaking fees / bogus academic appointment / book advance / lobbying / no-work corporate job / personal foundation B.S. '

Which is true, but why not cash in before actually getting elected? After all, only one person gets to be president at a time.

Which is true, but why not cash in before actually getting elected?

Oh, well of course they do that. All kinds of speculative money flows in to candidates just in case they're elected. It tends to dry up though when there is no longer any prospect of buying influence (as did the 'charitable' contributions to the Clinton Foundation following Hillary's loss in 2016).

Politicians are celebrities after all, and a vast and efficient industry has sprung up in the last few decades to enable even D-list celebrities to monetize their fame. Nothing remarkable here.

We are a long way from the days when Ulysses Grant or Harry Truman faced genuine financial hardship after leaving office. In fact they had to invent presidential pensions in order to help out Truman.

"a vast and efficient industry has sprung up in the last few decades to enable even D-list celebrities to monetize their fame"

Yes, but this is not the same thing. People paying 'D-list celebs' expect to earn a profit in the market doing so. People paying pols exorbitant speaking fees don't expect a financial return (except via future access and favors).

Wait... we were originally talking about retired politicians like Reagan who served his full two terms. There was no future access or favors to be gained.

You can pay aging rock stars' exorbitant concert fees by selling a bunch of tickets to the public at high prices. Why would it be hard to pay post-retirement celebrity politicians' speaking fees in the same way?

A couple of years ago a photo made the rounds showing Barack Obama and Justin Trudeau sitting in a restaurant in Canada. Obama was in town on a speaking engagement. Not a speech to the local equivalent of Goldman Sachs, just one of those "An Evening with..." style events. On stage with a moderator asking softball questions. Like a "Conversations with Tyler" public event, but with an appearance fee.

The overseas public knows these celebrities from TV but never saw them in person earlier because they never toured (campaigned) in those countries.

"There was no future access or favors to be gained."

Sometimes it's both a reward for past favors and signal to active politicians that their current efforts could be well rewarded if only....

"Why would it be hard to pay post-retirement celebrity politicians' speaking fees in the same way?"

Sometime it works. But sometimes it's really hard to sell tickets (as I believe it was with a 'Bill & Hillary' tour not too long ago). But who takes the loss on unsold seats? Those kinds of events can be the same as paying big advances for books by politicians (and their ghosts) that never pay back the advance (and nor did anybody really expect them too -- that wasn't the point).

I think we are being lied to.

Minor tinkering that was in the process of being worked out, like country of origin and other technical stuff.

Car stuff may be major, but US is a mature market with excess domestic capacity anyway. The part re using courts is significant, but not something Trump wanted, so, if it serves to take this off the table for awhile, its ok.
Expect to see more washing machines and air conditioners made in Mexico, and small engine assembly.

I think we are doing to much concessions.

"And 40 to 45 percent of a car’s content must be made by workers earning an average wage of $16 an hour."

Crazy, but if it's serious, this involves all the low level tracking and data processing you'd need to do a VAT and border adjustment.

So do that, uniformly, instead.

Not a bad point. I’ll give you half a thumbs up.

Having been to quite a few automotive plants in northern Mexico, I can assure assure you it’s not serious.

Mexican automotive industry workers earn approximately $2.00 an hour if they’re on the books. Most Mexican workers are not on the books.

Registering prediction now: the average estimate (not by Mexico) of Mexican automotive industry worker wages does not reach $3 anytime between now and 2024.

Terrible. How are they going to police these rules?

Pathetic. But what do you expect from the NYT?

Having unionization decisions by secret ballot makes them a "sham"? Jesus.

Mere provincial that I is, I thought the ONLY allowed abbreviation to be "N. Y. T."--even within a weblink.

How can the N. Y. T. help maintain cosmopolitan provincial standards when their august usage and preference is ignored?

I'm curious to know what Trump thinks about "Right to Work" laws.

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