NEW YORK - For the group of people meant to be enemies of U.S. President Donald Trump’s trade agenda, the revised North American trade deal reached shortly before the stroke of midnight Sunday looks pretty good.
Despite the new name (the U.S.-Mexico-Canada Agreement, or USMCA) dropping any references to trade, let alone freedom, the tariff rates on imports from Canada and Mexico are still a mass of zeroes. The main new element — the abolition of a variety of milk Canada introduced last year to support its domestic dairy industry — is ultimately an anti-protectionist move. The main old element is some fiddling around NAFTA’s rules on automotive trade which, as we’ve argued previously, aren’t likely to change much.
That suggests an emerging playbook for the Trump administration’s trade agreements. As with the revised U.S.-South Korea deal announced last week, the achievement is declared to be historic while the changes made are cosmetic. That dynamic bodes rather well for the Japan-U.S. bilateral talks announced last week, not to mention the simmering trade war with China. For the globalists so often bashed in Trump-era rhetoric — and this columnist would count himself among them — that’s good news.
Consider the agreement on dairy. The milk variety that Canada has agreed to discontinue — known as Class 7 milk — has been in existence for barely 18 months, and its opponents include not just U.S. trade negotiators but also Saputo Inc., one of Canada’s largest processors.
More to the point, milk products comprise an almost infinitesimal share of the trade relationship between the two countries, accounting for about $364 million, or 0.06 percent, of each-way flows. Peat, pasta, polystyrene, paper and prefabricated buildings all account for a greater value of U.S. imports than Canada’s entire dairy industry, and it’s a similar picture in the opposite direction.
It’s not unlike the deal reached with automobiles, where the tariff-free quota imposed on Canadian products — if Trump pursues global levies on imports — is high enough to give Ontario’s plants leeway for a 30 percent volume increase and still have room to spare.
With any agreement like this, the devil is likely to be in the detail, especially the 234-page rules-of-origin chapter that, in today’s world of multi-country supply chains, becomes the core of a trade deal. The implications of that will be thrashed out over the days and weeks ahead, but the tentative approval emerging from the Canadian Chamber of Commerce, for instance, doesn’t suggest a great level of fear.
The danger of Trump’s trade stance is the possibility it will lead to the collapse of NAFTA, a breakdown of the World Trade Organization, or outright decoupling between the world’s two biggest economies. The outcome of the North American and Korean negotiations suggests something more positive: that Washington is happy to agree some minor modifications to existing agreements, declare victory, and go home to fight the midterm elections.
As we’ve argued before, the real hazard in the fight with China isn’t so much that it’s in the hands of Donald Trump, as that it crystallizes the much more radical ambitions of some of his advisers, who’d like to see a halt to China’s economic catch-up growth, a change in the relationship between the Chinese Communist Party and the state, or ideally both.
The limited scope of the accords with Mexico, Canada and South Korea suggests something different. If some subtle but worthwhile changes to Beijing’s regime on intellectual property could be agreed — altering third-party liability for technology licenses, for instance, or imposing heavier penalties for IP infringements — then it’s possible that the parties could declare a breakthrough on technology transfer, a possibility that Chinese Premier Li Keqiang has repeatedly dangled.
That may not sound like much, but then again a modest shake-up of U.S.-Canada dairy trade and rules-of-origin changes that affect a handful of Mexican-made car models don’t sound like much either, until they’re announced with ministerial fanfare and a greatest-ever presidential tweet.
The risk to trade agreements, especially in the Trump era, is that negotiators believe they must go big or go home. The latest deal suggests a more positive prospect: Small, in trade diplomacy, is still beautiful.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.