Simon Lester and Inu Manak
President Donald Trump’s biggest trade initiative so far, the North American Free Trade Agreement renegotiation, begins this week. The administration’s objectives are vague, and the outcome is uncertain, both in terms of timing and content.
Nonetheless, despite some very aggressive anti-trade rhetoric during the campaign (Trump called NAFTA “the worst trade deal in history”), this renegotiation has the potential to improve NAFTA, which lacks the innovations of more recent trade agreements.
The NAFTA renegotiation will not simply be a presidential wish list. Free traders, rather than cowering in fear, should use the renegotiation to modernize NAFTA and try to extend the liberalization process it began 23 years ago.
Three ways President Trump can modernize the trade agreement.
In doing so, we must keep in mind that NAFTA has brought great benefits to all three countries — the United States, Mexico and Canada — and these achievements should not be rolled back. Currently, Canada and Mexico are the destination for 34 percent of all U.S. exports, and the U.S. remains the largest single source of foreign direct investment into both countries. Despite what its critics claim about job losses, a 2016 report by the U.S. International Trade Commission stated that NAFTA has had “a small increase in U.S. welfare” and “little to no change in U.S. aggregate employment.”
There are three main ways that NAFTA can be improved. First, NAFTA came into force when Facebook CEO Mark Zuckerberg was nine years old, and does not address many of the e-commerce issues that are now central to international trade. Over the years, the United States has developed increasingly sophisticated provisions on e-commerce in other free trade agreements, culminating in the Trans-Pacific Partnership (from which Trump withdrew). As part of the NAFTA renegotiation, e-commerce provisions can be further updated to make NAFTA cutting-edge in this area.
Second, over the past couple of decades as NAFTA has been implemented, some flaws have been exposed. For example, the core dispute provision (Chapter 20), which lets governments bring complaints when they believe another government is violating the rules, has not functioned. Defending governments have sometimes been able to prevent complaints against them, as in a 2000 case brought by Mexico against U.S. barriers to sugar, which never made it to the panel stage after the U.S. blocked the process. New rules are needed in this area to ensure that complaints are heard.
Two other specialized dispute procedures on investment rules (Chapter 11) and review of anti-dumping countervailing duties (Chapter 19), could use another look as well, and possibly some amendments, as these provisions have raised concerns about the proper role of international courts and the balance between international and domestic power. The three governments should conduct a review of these provisions to see whether they are the most effective means for achieving their stated objectives, as conditions have changed over the years.
Third, NAFTA got rid of tariffs on most goods, but there were a few exceptions. One of the most notorious is Canada’s supply management system for dairy, poultry and eggs, which was excluded from the original negotiations because of pressure from domestic industry. The renegotiation effort could and should address these protectionist barriers. In addition, services markets were barely touched in NAFTA, and there is now an opportunity to tackle longstanding barriers in telecommunications and broadcasting, and open up additional sectors that NAFTA could not anticipate at the time, including those in which online trade is now possible, such as education or health.
At the same time, we must be wary of someone injecting the poison pill of protectionism into the new NAFTA. For instance, there has been talk by some people in the Trump administration of a trade deficit renegotiation “trigger,” under which NAFTA could be reopened if a government saw its trade deficit increase after signing. This is a dangerous idea. Most economists agree that the causes of trade deficits are complex, and generally reflect macroeconomic factors rather than trade agreement provisions. U.S. trading partners are unlikely to agree to such a provision, and the U.S. Congress should reject it as well.
Furthermore, other proposals, such as changing government procurement rules to allow the expanded use of “Buy America” provisions would also be a step backwards for liberalization. “Buy America” policies may strike an emotional chord with some voters, but are nothing but a traditional protectionist market distortion, limiting competition and raising costs for these projects, and leading to our trading partners adopting similar policies that harm U.S. goods and services providers.
The administration has also mentioned strengthening rules of origin, which are the requirements that determine whether a product qualifies for duty free entry. NAFTA rules of origin are known to already be the most stringent of any trade agreement in the world. Strengthening them denies the reality of international trade today, where things are not just “made in” one place. In fact, 15 percent of U.S. exports contain foreign content, and this figure has been increasing over time
This week, the Trump administration has the chance to begin a constructive renegotiation that would enhance North American liberalization and competitiveness, by tackling the remaining barriers to trade and investment on this continent. They should not waste this great opportunity.Simon Lester is a trade policy analyst at the Cato Institute. Inu Manak is a visiting fellow at the Cato Institute.
Where is corporate disavowal of Black Lives Matter?
by Michelle Malkin
Liberal business executives are leaping like lemmings from President Donald Trump’s manufacturing advisory council. Good riddance.
These silly string-spined CEOs have sided with social justice agitators, Beltway media enablers and Democratic resistance knuckleheads who believe Trump was wrong to condemn violence and hatred on all sides of the political spectrum. Never mind that of the four people arrested after the violent outbreak in Charlottesville, Virginia, this weekend, two were identified with the white nationalist movement and the other two were left-wing “antifa” counterprotesters.
One of those radical leftists is the man identified as having reportedly punched a female reporter for the D.C.-based newspaper, The Hill. But since that doesn’t fit the national media narrative of journalists allegedly being victimized by right-wing incitements to violence, mum’s the word from corporate media executives and the rest of the preening CEOs.
Merck CEO Kenneth C. Frazier claimed he stepped down from the Trump business panel because he felt “a responsibility to take a stand against intolerance and extremism.” But Frazier, who served on President Obama’s Export Council, felt no equivalent responsibility to take a stand against intolerance and extremism when the White House invited leaders from the violence-inciting Black Lives Matter movement for a forum on policing in July 2016.
The invitation was a grievous affront to law enforcement officers and their families across the country outraged at the deadly ambushes committed against cops in Dallas and Baton Rouge that summer, along with several other forgotten cop-killings fueled by BLM-linked hate and vengeance. Who remembers the slaying of Kentucky state trooper Joseph Ponder by BLM marcher and “Hands up, don’t shoot” slogan-spreader Joseph Thomas Johnson-Shanks in September 2015? At least 11 police have been shot dead and at least nine more wounded by BLM protesters, activists and/or supporters to date.
One of the surviving policemen in the Baton Rouge massacre filed suit last month against BLM and laid out the case against its leaders, who “not only, incited the violence against police in retaliation for the death of black men shot by police, but also did nothing to dissuade the ongoing violence and injury to police. In fact, they justified the violence as necessary to the movement and war.”
The permanently disabled cop’s lawsuit recounts escalating riots, arson and plundering after the police-involved deaths of Michael Brown and Freddie Gray in Ferguson, Missouri, through the ambushes in Dallas and Baton Rouge, and leading up to the Obama administration’s embrace of BLM’s leaders. After the meeting, BLM leader DeRay McKesson responded to questions about his movement’s culpability for inciting violence by asserting that his “people take to the streets as a last resort. … So when I think about anything that happens when people are in the street, I always start by saying, ‘People should not have had to have been there in the first place.'”
As the lawyers for the Baton Rouge cop, who must remain anonymous to protect his family, properly concluded: “These statements were a ratification and justification of the violence.”
But instead of recriminations, the militants of BLM enjoy continued praise and coddling from corporate America. Tech execs from Netflix, YouTube and Google all donated to McKesson’s failed mayoral bid in Baltimore. Business execs have been coughing up untold hundreds of millions of dollars to BLM and related causes, funneled through left-wing nonprofits such as the Ford Foundation and Borealis Philanthropy.
On Tuesday, Walmart executive Doug McMillon wagged his finger at Trump, urging “elected officials to do their part to promote a more just, tolerant and diverse society.”
This from the head of a retail giant that only recently stopped selling racially divisive, anti-cop taunting, violence-glamorizing T-shirts that bragged: “Bulletproof: Black Lives Matter.”
And the disavowal double standards beat goes on.
Michael D. Tanner
Conservatives have long been among the biggest critics of welfare programs for poor and low-income Americans, mostly with just cause. But such criticism would probably be received better if there was even half as much outrage directed at welfare for corporations.
The latest outrageous example of corporate welfare comes from West Virginia, where Republican-turned-Democrat-turned-Republican governor Jim Justice is asking for $4-5 billion in subsidies for coal-powered utility plants. The Trump administration is reported to be favorably inclined to the idea.
Trump, of course, made support for the coal industry a key part of his campaign, and that was undoubtedly a major reason he carried West Virginia by 45 percentage points. But Justice now admits that, even after Trump’s efforts at deregulation, the West Virginia coal industry is in trouble, challenged not just by alternative fuels but by bigger and cheaper sources of coal from Indiana and Wyoming.
Far from draining the swamp, Donald Trump simply wants to feed his alligators rather than Democratic ones.
Like corporate welfare queens everywhere, Justice pitches his plea for taxpayer bailouts in terms of jobs. Yet Governor Justice’s proposal, for example, would simply prolong the dying of an industry that has been declining for years, because West Virginia coal is increasingly expensive and difficult to mine, in the face of national and international competition. Just over 12,000 West Virginians still work in the coal industry.
Conservatives were justifiably outraged when the Obama administration poured billions of dollars in subsidies into companies like Solyndra and other “green energy” programs. They correctly made the point that if alternative-energy technologies were economically viable, they should take their place in the market and succeed or fail on their merits. Bailouts don’t become free-market policies just because the industry being bailed out is one you like.
We should know by now that President Trump has little interest in free-market capitalism. From trade policy to the Import-Export Bank to his support for ethanol subsidies, Trump has made it clear that his idea of “making America great again” involves government picking winners and losers, largely based on the president’s whims and whether the workers who would benefit voted for him. Far from draining the swamp, Donald Trump simply wants to feed his alligators rather than Democratic ones.
The Cato Institute estimates that corporate welfare costs American taxpayers more than $100 billion annually. And worse than the direct cost is the way in which such subsidies distort the economic decision-making process and limit the creative destruction that drives innovation and economic growth. The beneficiaries of corporate welfare are seldom entrepreneurs and innovators — or even workers — but rather those crony capitalists who have the right connections or who know how to work the system. This sort of crony capitalism encourages businesses to invest in lobbying and cozying up to politicians rather than invest in serving their customers or developing new products.
That’s a terrible way to run an economy. In fact, studies show that economies dominated by crony capitalism grow more slowly than free-market economies. By upending market efficiencies, corporate welfare makes us all worse off.
Let’s be clear. I have long been critical of most social-welfare programs. In the long run, they do more harm than good. Still, it would be nice, for once, if conservatives fought as hard against a bailout for some company as they do against, say, an increase in food stamps.
After all, welfare is welfare.Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis.
Nuclear weapons have become the great international equalizer. During the Cold War, the U.S. and Soviet Union couldn’t afford to risk a conventional war. If one side started losing, the temptation to escalate would be enormous. The results would be ruinous even for the nominal winner.
Since then, China probably has edged into the deterrence club, even though its nuclear arsenal is far inferior to that of America. And maybe India. No one expects New Delhi to attack the U.S., but some Indians noted its value as a means to deter any attempt by Washington at coercion.
Now North Korea is knocking on the club door. Pyongyang is a good example of the aphorism that even paranoids have enemies. The Democratic People’s Republic of Korea has fallen dramatically behind the South, which enjoys roughly 40 times the economic strength and twice the population, plus a host of other advantages. Add in Seoul’s ally, the U.S., and the DPRK has no chance in any conventional conflict.
Three steps toward solving the current crisis.
It’s hard to judge how much Pyongyang fears attack, but South Korean presidents from Syngman Rhee to Chun Doo-hwan talked about targeting the North (the former to reunite the peninsula, the latter to retaliate for the Rangoon bombing). Lee Myung-bak indicated his readiness to strike back in 2010 after North Korea sank a South Korean naval vessel and bombarded an island. Moreover, the U.S. defended the Republic of Korea in 1950, considered use of nuclear weapons in that conflict, initiated a security treaty afterwards, stationed ample forces on the peninsula and nearby, and in recent years ousted the leaders of Afghanistan, Iraq, and Libya, and dismantled Serbia.
The president responsible for the first two of those wars termed the DPRK a member of “the axis of evil” and said he “loathed” its leader, Kim Jong-il. In Libya, Washington took out the dictator after he gave up his nuclear weapons and missiles. Now President Donald Trump has talked about sending an “armada” off of the North’s coast and drenching North Korea in “fire and fury.” He surely has offered Pyongyang retrospective justification for developing a nuclear deterrent. Who would want to face the current administration without one?
Acquiring both nukes and ICBMs is a game-changer, but not because Supreme Leader Kim Jong-un plans a surprise attack on America. He is evil, not suicidal. All indications are that he wants his virgins in this world, not the next. Rather, he wants to deter U.S. military involvement and attack. If Washington wasn’t bothering him, he wouldn’t likely want long-range missiles, which would inevitably attract America’s attention. But since he’s in the U.S. military’s gunsights, he needs the ability to strike back. With that, Washington will have to rethink whether it is willing to intervene even in another conventional conflict. If the DPRK again was on the brink of defeat, as in 1950, but without hope of Chinese or Russian rescue, then Kim would have little reason not to use his nuclear weapons. How many Americans want to risk Los Angeles and Seattle in order to defend Seoul and Pusan?
Current attempts to eliminate the North’s nuclear program seem doomed to failure. The North has repeatedly said it won’t voluntarily yield its nuclear program. When I visited Pyongyang in June, officials blamed Washington’s “hostile policy” and promised to match America nuke for nuke.
Ever tighter sanctions would hurt the DPRK, but the regime survived at least a half million starvation deaths in the late 1990s. And without full Chinese support, unlikely as long as Washington doesn’t demand that Beijing hand over its sole East Asian ally, the impact of unilateral penalties will be limited. Secondary sanctions would wound Chinese banks and firms, but such an approach would more likely engender resistance than acquiescence from Beijing.
Military action would risk triggering the Second Korean War. The Kim regime is likely to take any attack as a prelude to regime change. Reportedly the lesson learned by the Korean People’s Army from recent U.S. military operations is not to cede the initiative to America. While the U.S. (and Republic of Korea) forces would prevail in any war, the cost could be horrific, especially to South Koreans, whose land would be the primary battlefield, at least initially.
So Washington needs to take a different direction. Business as usual won’t work. What to do?
Drop the “Mutual” Defense Treaty and withdraw U.S. forces from South Korea. The alliance is outmoded. The ROK could construct whatever armed forces are necessary to deter the North and defeat it in any war. No doubt, South Koreans prefer to be defended by the global superpower. But protecting other states should be a matter of security, not charity.
That was the case when the threat was “only” a conventional fight, likely to be ferocious and costly. The prospect of a war going nuclear raises the question: does the U.S. really want to risk a nuclear attack on the homeland to continue protecting a nation well able to take over responsibility for its own defense? Washington officials should put the interests of Americans first, which means exiting one of the least stable standoffs on earth. Doing so would eliminate the most likely trigger for U.S. involvement in another Korean conflict.
Encourage South Korea to replace America’s “nuclear umbrella” with its own nuclear deterrent. Nonproliferation is a worthy objective, but in Northeast Asia the policy has acted a bit like domestic gun control. As a result, only the bad guys have guns. In this case, the nuclear powers are Russia, China, and North Korea. Which leaves Japan, South Korea, Australia, and others vulnerable to nuclear intimidation.
Does America forever want to risk Los Angeles and Seattle—and maybe Chicago and New York City as well—to protect Seoul, Tokyo, Canberra, and other cities in the region? Would an American president really follow through on the promises of previous leaders and risk mass destruction of the American homeland in defense of another nation, especially one not essential to America’s defense?
Propose a neutral reunited Korea to increase Chinese pressure on the North. Contrary to the seeming assumption of most U.S. policymakers, Beijing is not irrational in tolerating the DPRK’s confrontational behavior. The two countries are at best frenemies, with Pyongyang ever dismissive of Chinese advice. Moreover, the People’s Republic of China doesn’t want a failed state, perhaps enveloped in factional conflict, on its border, with potentially millions of refugees flooding north. Finally, the PRC does not desire a reunited Korea allied with America hosting U.S. troops, strengthening the system of containment being constructed by Washington.
So the Trump administration should sit down with the Chinese leadership and propose and old-fashioned geopolitical deal. Beijing backs up a comprehensive denuclearization program with tough sanctions. If the DPRK agrees, it survives and tensions ebb. If not, it collapses and the peninsula is reunited. But American troops come home and the new, enlarged Republic of Korea stays out of any U.S.-Chinese crossfire. The PRC sacrifices a nominal ally but gains a larger, more prosperous friend. Washington loses a real ally but maintains a good friend. More importantly, Washington ends the threat of involvement in a horrid conventional war and an even more dangerous risk of nuclear attack.
North Korea has ended the era in which Americans imagined they could engage in immaculate intervention, striking militarily at will and without consequence. President Trump can match Supreme Leader Kim insult for insult, but he dare not launch an attack lest he trigger the conventional war Washington has sought to prevent for 64 years. If the DPRK gains nuclear-tipped missiles capable of targeting cities and bases in the continental U.S., no rational president would consider fighting a war of choice against the North.
Yet present policy appears headed down this path. Only if the Trump administration rethinks conventional wisdom does Washington have a chance of getting out of the policy cul-de-sac in which if finds itself. For once U.S. leaders should put the defense of America before that of assorted allies and friends.Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.