Monday, December 3, 2018

Trump To Withdraw From World's Largest Free Trade Agreement

President Trump said Saturday that he intends to use his executive authority to withdraw from the North American Free Trade Agreement. Speaking to reporters on Air Force One, Trump said that he will soon notify Canada and Mexico of the United States intent to leave the trade pact.

“I’ll be terminating it within a relatively short period of time. We get rid of NAFTA. It’s been a disaster for the United States,” Trump said, adding, “And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well.”

The Trump Administration has negotiated a new agreement, which the US refers to as the United States-Mexico-Canada Agreement (USMCA), that is intended to replace NAFTA. NAFTA is the world's largest free trade agreement and has led to dramatic economic growth in all three nations.

Trump’s intention is obviously to give Congress the choice of either the new deal or no free trade agreement at all. NAFTA reduced tariffs among the three nations so destroying the pact would have the effect of raising tariffs even further and slowing trade. Already, American agriculture, small manufacturing, and shipping have been damaged by the trade war.

The new trade pact, which is also referred to as the “New NAFTA,” has received mixed reviews. On the plus side, the deal contains increased protections for intellectual property, agrees to prevent currency manipulation, and opens American access to Canadian dairy markets. On the downside, the treaty automatically expires in 16 years unless it is renewed and, in an apparent attempt to limit US investment in Mexico, the Trump Administration insisted on limiting protection from regulatory abuse. Further, the new deal increases the percentage of domestic content required to exempt new cars from tariffs.

Rather than free trade, the Wall Street Journal says of the USMCA, “This is politically managed trade, and its economic logic is the opposite of Mr. Trump’s domestic deregulation agenda.” The paper’s editorial board added that the “auto gambit is part of the Trump-Lighthizer strategy to blow up global supply chains.”

The main attraction of the Trump trade pact is that it is better than a reversion to pre-NAFTA rules with their return to increased tariffs and regulations. Economists say that the new deal won’t boost economic growth or increase manufacturing jobs. Its new limitations on free trade will end up costing American consumers more money while giving them less choice.

There is also debate on whether President Trump has the authority to unilaterally withdraw from NAFTA. The treaty includes a provision that allows for withdrawal after a six-month notice, but opponents say that since NAFTA was approved by the Senate, leaving the pact would also require Senate approval.

A 2016 report by the Congressional Research Service addressed the question of a unilateral withdrawal from NAFTA by the president. “As a practical matter, the President’s communication of a notice of termination of an FTA [free trade agreement] to trade partners in accordance with the FTA’s terms59 appears sufficient to release the United States from its international obligations,” the report says, but  notes, the “President could not repeal federal statutes implementing the FTA in the absence of congressional action because the Constitution gives Congress the authority to impose duties and to ‘regulate commerce with foreign nations.’” In other words, the president’s notice to terminate could be a withdrawal in name only if Congress does not change the US laws and regulations to differ from what the treaty requires.

The report also points out that “the Constitution apportions authority over international trade between the President and Congress.” The legality of Trump’s move is not specifically addressed in the Constitution and there is no precedent for a president unilaterally withdrawing from a trade treaty.

If President Trump goes through with his move to unilaterally claim the executive authority to withdraw the United States from a successful trade deal with its two largest trading partners, it will almost certainly provoke a constitutional crisis as well as an economic one. The Senate is controlled by Republicans but many oppose the president’s protectionist trade policies. Republican Senate leaders may be forced to sue to overturn the president’s abuse of executive authority or choose between either a badly flawed trade deal or no deal at all.

Originally published on The Resurgent

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