Dubai: US President Donald Trump has promised to fix what he described as the "mess" created by previous administrations, including renegotiating NAFTA, the free trade agreement with Canada and Mexico.
His repeated statements raised questions over whether Washington’s position could actually annul existing Free Trade Agreements (FTAs) and the legality of the expected protectionists’ US measures.
While trade experts criticised the positions taken by President Trump, they offered different scenarios of what could actually happen.
Not a global drive
“I don’t see anti-FTA sentiment as global — it is really only Trump’s declaration that protection is good and the US trade deals need to be renegotiated,” said Richard Baldwin, a veteran Trade expert and Professor of International Economics at the Graduate Institute, Geneva.
He pointed out to Gulf News that even the UK, which left the biggest FTAs, EU, actually wants to sign new deals.
In addition, there is “some acceleration” between non-US nations, including EU, Japan and Canada,
Other experts offered similar views, and expressed doubts that any of the “existing agreements will be terminated … but they may be modified in a less liberal direction,” according to Gary Clyde Hufbauer, a Washington-based expert with a long standing experience on international trade, and a coauthor of several books on the subject.
Protectionist measures
Amid all this debate and arguments, one agreement is expected to be re-discussed and possibly renegotiated: the North American Free Trade Agreement, which was signed more than 30 years ago with both the northern and southern neighbours of the US.
The focus is on its poorer southern neighbour.
Introducing protectionists measures, trade experts said, would set the global liberalisation efforts back.
“In my opinion, Trump’s rhetoric has truly dampened international willingness to move forward on a liberalisation agenda,” Hufbauer told Gulf News.
Responding to a question on the impact of the expected American protectionism policy, Hufbauer said most of the countries took a position on the opposite side.
“Many countries in Asia and Latin America [Pacific Alliance], as well as the EU, and President Xi of China, have said all sorts of good things about globalisation in response to Trump, and have talked about fresh policy liberalisation. So far, it’s talk, not action,” said Hufbauer, who is currently Reginald Jones Senior Fellow at the Peterson Institute for International Economics in 1998.
Moreover, protectionism, experts stressed, constitutes a violation of international trade rules and laws.
“The measures threatened by [President] Trump violate the WTO and existing US FTAs, which are all part of international law. The US has bound its tariffs at very low levels, and promised national treatment for imports from other countries. These commitments have all been questioned by [president] Trump,” said Hufbauer.
President Trump has repeatedly vowed to make “America First”, “make America great again”, and to bring back and create jobs for Americans.
However, trade experts say achieving these goals would not be through revoking existing trade agreements with other countries. Instead, there is a need to adapt local labour markets to global trade changes, they said.
Adjust certain elements
“In our view the US could be as much a loser as a winner from the taking down of trade deals,” said Dubai-based Gary Dugan, Chief Investment Officer, at the Wealth Management at Emirates NBD.
“Bottom line we expect the vast majority of trade deals to remain in place but President Trump may wish to adapt and adjust certain elements of some trade deals to fulfil his promise to put the US first and to protect some US jobs from what he may see as unfair competition. But to be clear, the reason that US jobs were lost to overseas manufacturers was because the US was an expensive place to manufacture that particular product,” Dugan said.
In order to bring jobs back to the US, American workers have two options, either to accept a lower pay to produce a competitive product, or American consumers have to accept a higher price for products produced on American soil, rather than abroad with lower cost of labour.
“Protectionism is per se bad for world trade. However, there are different forms of protectionism,” said Dugan. “Protectionism where poorly performing industries hide from global competition benefits no one. Protectionism where a country tries to build a strategic industry that it could in the long term have a competitive advantage in is understandable.”
At the same time, the US complains about losses from trade agreements with other countries is not only limited to the US, as there “are always tensions” between countries over trade and “ongoing arguments” as whether treaties are far or not to the signing parties, trade experts said.
In particular, “international treaties are by their very nature are not fair to all sides. They are a compromise,” said Dugan.
Losses to Mexico
According to a draft memo prepared by Stephen Vaughn, Acting US Trade Representative addressing the US congress, which was leaked to the press recently, the US is going to ask Mexico to open its market “a lot, while the US don’t do much,” as one of the experts put it.
Mexico, according to earlier press reports, has also suffered some losses because of its free trade agreement with its northern neighbour. Many unskilled Mexican labourers lost their source for bread and butter after the subsided American products reached Mexico and were sold at cheaper prices than local Mexican products. As a result, unskilled labourers lost their jobs and ended up migrating to the US illegally looking for jobs, according to press reports. In addition, when the Big American companies, such as Walmart, entered Mexico, they ended the small Mexican enterprises who were offering similar products.
Many believe NAFTA was concluded mainly because of political reasons, with the aim of winning Mexico on the American side, rather than other emerging powers, according to press reports.
Daily trade figure
On the other hand, the Mexican government said it is committed to preserving NAFTA and to protect the bilateral daily trade between the two countries estimated at $1.4 billion (Dh5.14 billion). Mexico said it is open to modifications. However, it made it clear that any renegotiations of the deal should also include border security and immigration.
Mexican officials and business leaders have also said that if negotiations go downhill, they are prepared to walk away from NAFTA, said a New York Times report.
If it happens, renegotiating NAFTA is not expected to be swift.
President “Trump has talked about renegotiating them, but that takes a long time and Congressional approval — all of which means that the FTAs in force will probably remain in force for another year or two at a minimum,” Baldwin said.
“My guess is that the Trump administration will get bogged down in renegotiating NAFTA especially once the US Congress starts to get involved,” he continued.
