GoKawiilIn what would be major news except for all the other disasters happening, Donald Trump has declined to renew the USMCA — the successor to the North American Free Trade Agreement — which he himself negotiated. This puts businesses on notice that tariff-free shipments within North America, which NAFTA supposedly made permanent, may go away.
Some commentators have dismissed this as no big deal, because Trump’s successor will probably reverse his decision and make the USMCA permanent after all. However, this misses the point of such agreements. Before NAFTA went into effect, North American tariffs were already low. The average tariff imposed by the US on imports from Mexico was only 2 percent. But NAFTA gave more than tariff relief. It gave, or seemed to give, certainty: businesses could invest in border-spanning supply chains confident that they would be able to use these chains for many years to come.
Or, as it turns out, not, if we have a U.S. president who doesn’t care about breaking promises.
Bloomberg ran a segment about all of this, with a substantial part coming from an interview I had with David Westin a few weeks ago:
Transcript:
Westin We start with the poster child for North American trade, the auto industry. Since the USMCA’s predecessor, NAFTA, came into effect over 30 years ago, autos have been at the center of negotiations. The reason is simple. The industry is tightly integrated across northern and southern US borders, borders like the one between Detroit, Michigan and Windsor, Ontario. This is the brand new Gordie Howe International Bridge that spans the Detroit River, separating the Motor City from Windsor. It was named for the famed hockey player who was born in Canada but crossed the border to lead the Detroit Red Wings to four Stanley Cups. Canada paid for the bridge, but now President Trump has put its opening on hold, which in itself is unlikely to divide the two cities’ economies.
Krugman Those are not really separate cities. There just happens to be a borderline through them.
Westin Economist Paul Krugman won the Nobel Prize for his work on trade.
Krugman Stuff does go back and forth. There’s a tremendous amount of specialization, which is good for everybody. It reduces costs, increases efficiency.
Westin: One of the companies benefiting from that back and forth trade is Linamar, a manufacturer with headquarters outside of Toronto. Jim Jarrell is its CEO.
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