Topic: Trade Policy

The Trump Administration’s Latest Trade Move

The latest attack on international institutions by the Trump administration distinguishes itself by being quite obscure: It’s about postage. It also may have more of a basis than most of the administration’s complaints about trade. 

The administration is concerned about the Universal Postal Union (UPU), a specialized agency of the UN. The UPU was established by the Berne Treaty of 1874 and became a UN agency in 1948. The administration has taken issue with the “terminal dues” rates issued by the UPU, under which, the administration argues, the United States has been subsidizing the shipping costs of foreign suppliers in certain countries, including China, when they send goods to the United States. The basic story is as follows (some good background is here).

When companies or individuals ship goods abroad, they use their domestic postal service to send the item. When that item arrives in the foreign country, the postal service of the shipping country makes a payment to the postal service of the destination country in the form of “terminal dues.” These “terminal dues” are set by the UPU and are designed to cover the destination country’s portion of the transportation costs – basically an agreed upon reimbursement rate to transport the item to the recipient.

The Trump administration’s concerns relate to the “terminal dues” rates set through the UPU for less wealthy countries, such as China. These countries’ rates are set very low, and do not necessarily cover the actual costs of shipping (and are sometimes significantly less than the rate American companies pay to ship within the United States). What this means in practice is that American taxpayers are sometimes subsidizing the transport costs of American companies’ foreign competition. It appears, then, that there is some legitimacy to the administration’s concerns about unfairness. 

Of course, as is often the case with the Trump administration, its approach to the problem is confrontational and perhaps risks inflaming tensions. The administration has, yet again, decided to use a threat of withdrawal from a treaty as a negotiating tactic, taking steps to withdraw from the UPU. Perhaps the withdrawal threat will force quick action to change the fee structure at the UPU, although there are some risks. Pulling out of the treaty would give the United States the flexibility to set our own transport rates, but it would also mean that we lose the power to stop others from charging us higher rates in return, while doing away with a mechanism that was designed to reduce, and streamline, transaction costs. In essence, the administration’s approach could lead to a postal “trade war.”

Are there alternative approaches? A Bloomberg editorial board piece sets out what they think may be a workable solution: having the administration look for a compromise on a postal rate during the broader trade negotiations with China. Of course, there would have to be some negotiations going on for this to work.

If it weren’t for all of the other aggressive trade actions taken by the Trump administration, this issue might be more easily addressed. Because it is part of a larger package of contentious moves, it might get lost in the mix of all the real and perceived trade slights the administration is complaining about. In calmer times, this might be a simpler problem to fix.

Thanks to Logan Kolas for research assistance with this post.

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“Where Do We Have Tariffs?” the President Asked. On Clothing and Footwear, For a Start

“Where do we have tariffs?” President Trump asked yesterday. One obvious answer is on imported clothing and footwear, where tariffs are both substantial and hit low-income consumers hard.

The United States raised $33.1 billion in tariff revenue in 2017, but $14 billion of that came from tariffs on apparel and footwear alone. These items account for 4.6 percent of the value of U.S. imports, but 42 percent of duties paid. That means while the average effective tariff rate for U.S. imports overall is just over 1.4 percent, rates for apparel and footwear are 13.7 percent and 11.3 percent, respectively.[i]

My colleague Daniel Ikenson has previously examined the evolution of clothing and textile protectionism. He concludes that such high tariffs do not protect domestic apparel manufacturing. Data from the U.S. Trade Representative shows that 91 percent of manufactured apparel goods and 96.5 percent of footwear are imported.

Why then are such highly regressive tariffs imposed? The answer appears to be the lobbying efforts of the capital-intensive U.S. textile industry. Textiles are the major input for labor-intensive apparel production, which largely occurs overseas. To quote Ikenson directly:

The U.S. textile industry insists on preserving those tariffs as leverage to compel foreign apparel producers to purchase their inputs. Preferential access [to U.S. markets] is conditioned on use of U.S. textiles. The high rates of duty apply, generally, to all “normal trade relations” partners. But those duties are much lower or excused entirely for trade agreement partners, provided that the finished garment comprises of textiles made in countries that are signatories to the agreement.

U.S. consumers pay the price of this protectionism, and poorer consumers especially. In 2016, the average household in the bottom income quintile spent $860 on apparel and footwear, or 3.4 percent of overall spending—the highest proportion of any income quintile. The average single-parent household put 4.5 percent of total expenditure toward these goods. The poor spend a disproportionate amount on clothing and footwear, and family structures most likely to be recipients of means-tested welfare programs (single-parent households) spend most of all.

But this protectionism is not just regressive because of relative spending patterns. Edward Gresser’s work has shown how, often, luxury clothes and shoes face lower tariff rates than inexpensive products.

Consider Table 3 from my report below (an updated version of Gresser’s work.) Where duties are applicable, a pure cashmere sweater import incurs a 4 percent tariff, a wool sweater a 16 percent tariff, and an acrylic sweater a whopping 32 percent. Men’s silk shirts see a 0.9 percent tariff, cotton shirts a 19.7 percent tariff, and cheaper polyester shirts a 32 percent tariff. Leather dress shoes have an 8.5 percent tariff, whereas cheap sneakers would see a 43 percent tariff. Windbreakers, leggings, tank tops, and other clothes made cheaply from synthetic fabrics face a 32 percent tariff if sourced from countries that the United States does not have a free-trade agreement with. Assuming poorer households tend to buy cheaper products, these differential tariffs have perniciously regressive effects.

Regressive tariffs

The true overall cost of all this to poorer families is difficult to calculate. To get an accurate estimate would require detailed information on the effect on domestic substitute goods’ prices, knowledge of products bought by poor families and their propensity to import in the absence of protectionism.

Nevertheless, we can develop cautious lower-bound estimates. The average household in the poorest income quintile spends $655 on apparel and $206 on footwear per year. Assuming the import propensities for the population as a whole apply to poorer people implies $595 of apparel spending and $199 of footwear spending is on imported goods. Taking average effective tariff rates for apparel and footwear for this spending (13.7 and 11.3 percent) implies a combined direct tariff cost of $92 per year for the average household in the poorest income quintile, or $204 per year for the average single-parent household.

These figures likely underestimate the true burden, because they only represent the direct cost from current spending on imported goods. They assume tariffs do not raise domestically produced goods prices, though in reality the anti-competitive effect of the tariffs would be expected to raise prices here too. It also assumes the same effective tariff rates for apparel and footwear apply for the poorest households as for the whole population, but we have seen that products that the poor are more likely to buy tend to face higher tariff rates. Consumer welfare losses from tariffs, of course, are higher than the implied costs here, since tariffs make consumers less willing to buy imported products that they would otherwise prefer.

In short, next time the President asks where tariffs are applied, someone shout “apparel and footwear.” They are both large and regressive.


[i] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” at http://dataweb.usitc.gov. Data for imports for consumption, and effective rates calculated using “customs value” and “calculated duties” for 2017.

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The Jones Act Isn’t Working. Just Ask Its Supporters.

Although the Jones Act’s stated purpose is to ensure that the United States “shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency,” this plainly isn’t the case. But don’t take my word for it, just listen to ardent backers of the law such as Rep. John Garamendi (D-CA):

Our military relies on privately-owned sealift capacity and highly trained and credentialed merchant mariners to transport and sustain our armed forces when deployed overseas during times of conflict. But the number of ocean-going U.S.-flag vessels has dropped from 249 in the 1980s, to 106 in 2012, to at most 81 today.

The consequences of this steep decline are not just theoretical. Our military has had to turn to foreign-flagged vessels for sustainment in times of war, and experience shows that can have dangerous consequences. In the 1991 Gulf War, our armed forces relied on 192 foreign-flagged ships to carry cargo to the war zone. The foreign crews on thirteen vessels mutinied, forcing those ships to abandon their military mission. Would foreign flag carriers be any more reliable today, especially for a long-term deployment into active war zones?

But the number of ships is not the only issue: The U.S. Transportation Command and Federal Maritime Administration estimate that our country is now at least 1,800 mariners short of the minimum required for adequate military sealift, even with the Jones Act firmly in place. Without the Jones Act, our nation would be wholly unprepared to meet the labor demands of rapid, large-scale force projection for national security.

The House Coast Guard and Maritime Transportation Subcommittee’s ranking member is absolutely correct about the sad state of the U.S. merchant fleet. Some of his numbers, however, are off the mark. The drop in the number of ocean-going U.S.-flag vessels is even more dramatic than what he states, declining from 737 in 1985 to a current figure of 180. Regarding the 1991 Gulf War, meanwhile, the actual number of foreign-flagged ships used as part of the U.S. sealift was 177 rather than 192. It’s also inaccurate to say that thirteen vessels were forced to abandon their military mission, with eight of those vessels ultimately delivering their cargo after initial hesitations. 

Although an article of faith in pro-Jones Act circles, the congressman’s claim that the United States would be in even more dire straits absent the law is open to question. The Jones Act’s domestic build requirement, for example, forces U.S. carriers to purchase vessels at vastly inflated prices compared to foreign shipyards (4x is a figure used by many observers while a 2017 Congressional Research Service report placed the U.S. price at 6-8x higher). Using basic microeconomics we can intuit that higher prices mean fewer ships, and thus fewer mariners to crew them. 

Linking to a Cato Institute analysis of the Jones Act, Garamendi then turns his attention to accusations that the law is an “outdated protectionist anachronism”:

Opponents of the Jones Act routinely claim that it is an outdated protectionist anachronism that does more harm than good, but nothing could be further from the truth. A comprehensive 2018 survey of seafaring and industrial nations around the world shows that cabotage laws such as the Jones Act, which provide for domestic preference for shipping policies, are the norm, not the exception. Ninety-one U.N. member states comprising 80 percent of the world’s coastlines have cabotage laws protecting domestic maritime trade. The conclusive fact from this survey is clear: seafaring nations understand the importance of their domestic maritime industries, and have laws on the books to safeguard them.

This misses the point. While cabotage laws are indeed common, the Jones Act’s stringent requirements—and in particular its mandate that ships must be built in the United States—place it well outside the mainstream. Indeed, the World Economic Forum calls the Jones Act the world’s “most restrictive example” of cabotage laws, noting that not even China has a domestic build requirement. 

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Brexit Update: Talks Reach Crunch And “No Deal” A Strong Possibility

Where Brexit negotiations are concerned, we have reached (as they say in Britain) “squeaky bum time.” The triggering of Article 50 on March 29th 2017 started a 2-year countdown for the UK and EU to negotiate a withdrawal agreement for a binding international treaty. Yet just 5 months from deadline, the EU’s position on Northern Ireland and a lack of domestic support for Prime Minister Theresa May’s desired long-term trading relationship mean a no deal Brexit in March remains a real possibility (the tweet linked here quotes Britain’s trade minister Liam Fox).

True, much of the withdrawal agreement has been long agreed. A transition period through to 31 December 2020 is planned to essentially keep the UK within the EU’s economic institutions (the single market and customs union), though reports suggest both sides might be willing to extend this for an extra year. Free movement of people would continue for this period, and the UK would pay £39 billion into the EU budget. Importantly, though Article 50 states that a withdrawal agreement must take account of the longer term post-exit relationship, this is not going to be achieved in time: the agreement would merely be accompanied with a joint, loose-languaged political declaration on the future framework.

But it’s here where difficulties have arisen, and most center around the Northern Irish border. Both sides have said from the start that, post-Brexit, they want to keep the border between the Republic of Ireland (an EU state) and Northern Ireland (part of the UK) free of physical infrastructure and associated interventions at politically-sensitive crossings. But making that commitment self-evidently necessitates a trade relationship. Given long-term trade arrangements will not be agreed in the withdrawal agreement, the EU has therefore insisted that the withdrawal deal itself contain backstop provisions to ensure the border remained open should another arrangement or trade deal incorporating not be agreed.

This is what led last December to the UK and EU agreeing in principle to a fudged “backstop” position on Northern Ireland. In vintage legalese, the text stated: “In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement.”

Given the UK government has said repeatedly that the UK would be leaving the EU customs union and single market, this text raised Brexiteer eyebrows. Yes, the UK government agreed this to kick forward future trade relationship talks, and in the hope it would not be ultimately necessary. But talk of full alignment left ambiguity, and the potential for the backstop itself to keep the UK locked into Brussels’ regulatory and customs orbit. However much the UK government insisted that this language did not mean regulatory harmonization, but instead merely achieving shared regulatory goals via detailed sanitary rules, customs procedures, and the Single Energy Market, the backstop left an uncomfortable feeling that the UK had fallen into a trap.

This was not helped when the EU then rejected proposed “technological solutions” and “away from the border checks” that the UK insisted could have avoided the backstop. The unease intensified when, from February, the EU and Ireland began proposing a backstop arrangement where Northern Ireland alone would remain within the EU single market and customs union to ensure a soft border. This was something out of kilter not only with the text but with the wishes of the Northern Irish Democratic Unionist party which props up the Conservative minority government.

This is all significant because Brexiteers fear now that the Northern Irish border has become the tail wagging the dog not just on the backstop, but on the potential future long-term trade relationship between the EU and UK. They fear the UK is being hoodwinked into a Brexit-in-name-only by threats of breaking up the UK through saying that only a soft Brexit can keep the Northern Irish border without physical infrastructure.

The Prime Minister Theresa May’s proposals for a longer-term trade relationship (known as the Chequers Plan) is Exhibit A. Rather than aiming for the best trade arrangements and then seeking to minimize disruption at the Irish border, the plan seems explicitly designed to keep the border as frictionless as possible, at the cost of an extraordinary loss of policy freedom. Chequers proposes a common rulebook between the UK and the EU on goods and agri-goods trade but not services, where fears of Brussels regulating the City of London alone without a UK vote were reason enough alone for exclusion. Non-regression-like clauses on environmental and labor laws would be included.  A complex facilitated customs arrangement would see the UK collect the EU’s tariffs on its behalf.

This deal has proven anathema to most Conservative Brexiteers, binding as it does the UK to EU goods regulation without voting power over it and stripping away the bargaining chip of goods regulation in making liberalising trade deals with third parties. They see Chequers as an unnecessary loss of sovereignty, and want Theresa May to “Chuck Chequers” and instead negotiate with the aim of a whole of UK FTA and practical solutions at the border.

Incidentally, the EU doesn’t like Chequers either. They rightly see it as cherry-picking parts of the single market, are suspicious of a foreign government collecting its duties and would prefer even tighter integration of lots of regulations (including commitments for full harmonization on labor and environmental laws), such that the UK cannot secure a competitive advantage. Political commentators in the know say Chequers is dead as far as the EU is concerned.

In the EU’s eyes, the preferred long-term options have always been a Canada-style free trade agreement, or maintained UK membership of the single market and a customs union (in essence, a political Brexit but not an economic Brexit). Most Brexiteers very much prefer the former, which comes with more regulatory and trade policy freedoms.

This brings us to the crux of the current political crisis. May’s government have thus far lined up with the EU (and against Brexiteer insistence otherwise) in stating that it’s impossible to solve the border problem satisfactorily through an ordinary UK-EU free trade deal and other practical solutions. They imply that with a Canada-style FTA, Northern Ireland alone would have to remain tied to EU economic institutions to avoid a hard border, effectively creating an economic border down the Irish Sea. Conveniently, May claims that only something like her Chequers plan can avoid this.

But with Chequers seemingly without much support at home or in the EU, the future relationship talks have effectively stalled. With so much uncertainty about it, the backstop agreement has taken center-stage, because de facto that could become the default relationship. And here Brexiteer fears have heightened. Since May insists no UK government would countenance Northern Ireland having different customs arrangements from Britain, she has proposed the whole of the UK remaining in a customs union-like arrangement as a backstop.

Earlier this year she suggested this would last for an extra year beyond transition (to December 2021) and Brexiteers are still keen on this kind of time limit. But the EU says that a backstop cannot be time-limited, because otherwise it’s not a backstop. Brexiteers winced this week when the PM’s position seemingly “evolved” in the EU’s direction, with her suggesting remaining in a customs arrangement as a backstop on a “temporary” but indefinite basis. These fears heightened with news that the EU believed there was not enough time to discuss a UK-wide backstop proposal, and insisting that the withdrawal agreement incorporate a “backstop to a backstop,” with a Northern Ireland-only customs arrangement should a full UK-wide agreement fail to be agreed.

For many Brexiteers, the major economic benefit of Brexit is the ability to conduct independent trade policy, cutting deals and setting tariffs. An indefinite customs arrangement threatens this. Given the EU would seemingly prefer the whole of the UK to remain within its economic institutions, a non-time-limited customs backstop provides little incentive for the EU to agree to a future comprehensive free trade deal the Brexiteers desire.

Combined with Chequers then, Brexiteers fear a huge sell out is on the cards. The UK government’s official position has always been that the country will leave the EU single market and customs union. But now both Chequers and the backstop risk are seen to keep the UK within these arrangements to varying degrees.

The result is a political crisis. The PM this week updated the house on the negotiations but could not provide assurances any customs arrangement backstop would be time-limited. She has since floated and then rowed back on extending the transition period, something that would see UK taxpayers pay for at least another year of EU funding, without settling the backstop issue.

As a result, everyone is unhappy. There is talk of Brexiteers dethroning May as a last gasp attempt to push for the Canada FTA-type deal the EU has offered. The DUP are threatening to derail the government’s domestic legislative agenda should the PM allow Northern Ireland to be treated differently. The hardline Remainers, meanwhile, are pressing for a second referendum on any withdrawal agreement May brings back.

With the clock ticking, and stakes rising, the prospect of no deal is therefore heightening. The EU has engineered a situation where in the long-term it insists either the UK must sign up to a backstop where Northern Ireland must be effectively economically annexed, or the UK must remain locked in the EU’s regulatory and customs embrace itself.

The Brexiteers (to my mind rightly) consider this unacceptable. Ignoring whether a change of Prime Minister or strategy is perceived as bad faith negotiating by the UK, it does not seem an extreme position to say that the EU should not have the right to dictate the economic breakup of a sovereign country, nor determine its domestic economic regulations. But at such a late stage and in such a febrile political environment, who knows where this multi-actor game of chicken ends?

Is The Trump Administration Finally Going To Pursue Some Trade Liberalization?

The focus of the Trump administration’s trade policy to date has been on renegotiating existing trade deals (with a mix of minor liberalization and modest new protectionism), putting tariffs on a wide range of imports using flimsy justifications, and engaging in a high-profile trade war with China. By contrast, it has put very little effort into pushing for significant new trade liberalization.

That may be about to change. The U.S. Trade Representative’s Office has just sent letters to Congress formally notifying the administration’s intent to enter into trade negotiations with the EU, Japan, and the UK. Cato scholars have called for exactly these negotiations (see herehere, and here, and much more detail here).

There is a lot of work ahead, as these negotiations won’t be easy. They would have been easier if the administration had not imposed “national security” tariffs on imports of steel and aluminum from these very same trading partners. Nevertheless, almost two years into the Trump administration, there is finally a glimmer of hope that there could be some trade liberalization coming.

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Saving the WTO’s Appeals Process

The continued intransigence of the Trump Administration in blackballing the appointment of new judges to the highest tribunal of world trade compels the 163 other countries that are members of the World Trade Organization to unite by resolving their international disputes in a way that cannot be stopped by the United States. The other, practical way should be the alternative means of trade dispute resolution currently available under Article 25 of the dispute settlement rules that are part of the WTO treaty – WTO arbitration.

The US refusal to join in the consensus needed to appoint and reappoint members of the WTO Appellate Body has now reduced the appellate tribunal from its full complement of seven judges down to the minimum of three judges required by the WTO treaty to hear an appeal. WTO member countries have an automatic right to appeal the legal rulings of ad hoc WTO panels under the treaty. If there are not three judges to hear an appeal, then the right to appeal will be denied and the WTO will be unable to adopt and enforce panel rulings.

Recently, nearly 90 percent of all panel reports have been appealed. Left with no opportunity to appeal, surely every country that loses before a panel will nevertheless seek to exercise its right to an appeal to guarantee that the verdict against it will not be enforceable. The WTO dispute settlement system will then be paralyzed. Moreover, if the rules cannot be upheld and enforced, why bother to comply with them or try to improve them? The very existence of the WTO will then be put at even graver risk than it faces now due to the illegal actions of Trump and his trade enforcers on other fronts in world trade.

If this stalemate between the US and the rest of the WTO continues, come December 11, 2019, the final terms of two of the three remaining members of the Appellate Body will end, and the tribunal will be reduced to only one member. Unlike the US, the other 163 countries in the WTO profess to see this situation as urgent. They also seem to assume they have until December 10, 2019, to resolve it. But one of the three remaining judges could at any time become ill, encounter a legal conflict, or decide to resign for family or other unrelated reasons. This could happen tomorrow.

The 163 other WTO members have endured nearly two years of largely stoic stonewalling by the United States due mainly to the US distress that the Appellate Body has had the temerity to do its job by upholding treaty rules on the use of dumping and other trade remedies that the US played a leading role in writing but now indignantly opposes under pressure from protectionist interests domestically and from within the Trump Administration.

The time has come for the other WTO members to stand up to Trump’s bullying and isolate the United States by employing the alternative of arbitration that has previously been largely ignored but is clearly permitted under the WTO treaty. Under Article 25, any two WTO members can choose to use arbitration when they have a trade dispute. They can select their own arbitrators. They can decide on their own procedures. They do not need prior approval to do so. They cannot be prevented from doing so by any other country. The judgment they get in arbitration will be as binding and as enforceable as any other judgment in WTO dispute settlement.

“Arbitration” is not defined in Article 25. Thus, countries choosing it as an alternative to the regular dispute settlement proceedings are free to decide simply to duplicate those proceedings. They can photocopy the regular dispute settlement rules and adopt them as their form of arbitration. This would have the practical effect of establishing a parallel dispute settlement system in the WTO that is identical to the current one – but that excludes the United States.

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NAFTA 2.0: The Best Trade Agreement Ever Negotiated (Except for All of the Others)

The text of the new “United States-Mexico-Canada Agreement” was released last Sunday night, a few hours after I had spoken at an event in Birmingham, England about the virtues of “The Ideal U.S.-U.K. Free Trade Agreement.” To borrow from the late Sen. Lloyd Bentsen: I know the ideal free trade agreement; USCMA, you’re no ideal free trade agreement.

The ideal free trade agreement is one which accomplishes maximum market barrier reduction, enables maximum market integration, forecloses governments’ access to discriminatory protectionism, and obligates the parties to refrain from backsliding.

As explained in the paper:

The ideal free trade agreement provides for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible. It should limit the use of so-called trade remedy or trade defense measures. It should open all government procurement markets to goods and services providers from the other party. It should open all sectors of the economy to investment from businesses and individuals in the other party. It should open all services markets without exception to competition from providers of the other party. It should ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations…

…[T]he ideal FTA must also include rules governing e-commerce. Digital trade — data flows that are essential components in the provision of goods and services in the 21st century — must remain untaxed and protected from misuse and abuse. Rules that prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services should be included, and obligations should be imposed on entities to ensure data privacy, consistent with the requirement that data flow as smoothly as possible.

When border barriers come down, the potentially protectionist aspects of regulation and regulatory regimes become more evident. Certainly, when businesses have to comply with two sets of regulations to sell in two different markets, it limits their capacity to realize economies of scale and reduces their capacity to pass on cost savings in the form of lower prices or reinvestment.

If those regulations are comparable when it comes to achieving the same social outcomes — consumer safety, product reliability, worker safety, environmental friendliness — there may be scope to require businesses to comply with only one set. A regulatory cooperation mechanism to promote mutual recognition would be a useful innovation, as a means to reducing business costs (provided no deep cultural aversion or science-based reason exists for considering one regulation better than the other and worth the greater cost).

Finally, the rules of the ideal FTA must be enforceable. What’s the point of a trade agreement if its terms are just suggestions? To make sure governments keep their promises, trade agreements should have a binding and enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Here’s how the USMCA stacks up to the ideal free trade agreement, which:

  • Would provide for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible.

In USMCA, most goods trade will continue to be tariff-free (the NAFTA status quo) under the new agreement, and barriers to certain agricultural products will be reduced as well. Moreover, the value thresholds for importing goods without having to pay any duties have been raised in Mexico and Canada, which will benefit small businesses, disproportionately, as they tend to conduct a larger share of transactions online.

(Conclusion: Criterion is almost met).

  • Would limit the use of so-called trade remedy or trade defense measures.

Trade remedy laws give domestic industries recourse to trade restrictions when they can demonstrate injury caused by “dumped,” subsidized, or substantially increasing imports. These laws are prone to misuse and abuse and become loopholes through which the benefits of trade barrier reduction achieved in the agreement can be quickly rescinded.  

In USMCA, no restrictions on the use of antidumping, countervailing duty, or safeguard measures are made. Rather, the long arm of the Safeguard law extends further under the revised deal by making it more difficult for Canadian and Mexican exporters to be excused from prospective safeguard tariffs. Moreover, the failure of the United States agreeing to blanket exemptions for Canada and Mexico from prospective tariffs on imported automobiles under Section 232 of the Trade Expansion Act of 1962 and the failure of the United States to remove the existing Section 232 tariffs on Canadian and Mexican aluminum and steel—thereby enshrining the view of Canada and Mexico as threats to U.S. national security—is in extremely poor taste, violates the spirit of a trade agreement, and reflects an absence of understanding of the meaning of being a good trade partner. 

(Conclusion: Criterion worse than unmet.)

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