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KPBS Midday Edition

Trump's NAFTA Makeover Not So Extreme

President Trump meets with Mexican President Enrique Peña Nieto at the Group of 20 summit in Hamburg, Germany, in July. Trump is pushing to renegotiate the North American Free Trade Agreement among their countries and Canada.
Evan Vucci AP
President Trump meets with Mexican President Enrique Peña Nieto at the Group of 20 summit in Hamburg, Germany, in July. Trump is pushing to renegotiate the North American Free Trade Agreement among their countries and Canada.

Trump's NAFTA Makeover Not So Extreme
Trump's NAFTA Makeover Not So Extreme GUEST: James Gerber, economics professor, San Diego State University

This is KPBS Midday Edition. I am Maureen Cavanaugh. Today in Washington, the United States and Mexico and Canada will begin to renegotiate NAFTA, the free-trade agreement between the three countries. NAFTA received frequent criticism from Donald Trump and the president has called quote, the worst deal ever made in the history of the world.NAFTA is a disaster. NAFTA has destroyed big sections of our country.San Diego Mayor Kevin Faulkner wants to keep NAFTA intact. Guy Maserati tells us.Speaking in San Francisco, Faulkner evangelized free trade with Mexico saying it has spurred job creation in San Diego.Free-trade works. We have grown exports by $5 million. Mexico is our biggest export partner from cynical.He has argued that NAFTA has led to an influx from products from Mexico and a loss of jobs in America that used to make the products. Mayor Faulkner will take the Pro NAFTA argument on the road next month when he will head to DC to lobby Aussie makers.We have an obligation as Californians. And I have an obligation as the mayor as indigo.We do not tell our story a success, no one will teleporters.The first round of negotiations runs through this week with a round set for September in Mexico.As renegotiations are about to begin, the overall tone is more Faulkner than candidate Trump. It appears the administration has backed away from a major assault on the decade old trade deal. To me is the economic professor as indigo State University. Jim, welcomed the program.Thank you.Looking at the negotiation goals, it does not look like they are pushing for a complete overhaul, does it ?No. That would be beyond the reach of any presidential ministration. The goal seems to be to reduce the trade deficit with Mexico but I have to say that this is a misguided goal in many respects. Trade deficits are not caused by trade agreements. The fundamental bottom line on why we have trade deficit is because we spend more than we produce. The difference is made up by imports.What you are saying is you cannot negotiate a trade deficit.You can reduce the reduction in the deficit but it is like a balloon. If you push on it in one place, it pops up somewhere else. The overall deficit will not go down through the negotiations.This agreement is more than 20 years old. Couldn't the renegotiations bring it more up-to-date ?There are things that could happen. You know, there are some things that are probably good that are happening. It went into effect in 1994. How has the world changed since then? That was a period where we were just beginning to use the Internet. The large data flows that now are possible was just in its beginning stage in many respects. We had no digital commerce at that point. We did not worry about about Internet service providers and opportunities. We did not worry about cloud storage. And how we might store our data online and we did not worry about whether or not the country demands that Apple or the iCloud or Google store data in that individual country. These are areas where the world has changed and it will be beneficial to ablate the trade agreement.Could the administration use these negotiations to revive the push for Mexico to pay for a border wall ?I think that is impossible. I do not see a way which that can happen. You cannot force people to pay for something that they resist paying for. This is a good example of how complicated our economies have become in the sense of how intertwined they are. If we seek to punish Mexico by hurting a particular sector of the economy, given that it is not willing to pay for the border wall, there will be spillover effects which hurt different sectors of the US economy.However this goes down, not everyone can win during a trade renegotiation. Who might come out the biggest losers if indeed significant changes are made to the NAFTA agreement ?This is an area where the economist see the world differently. The analysis is not close to where the popular rhetoric is. For example, there was a poll done of 50 leading economist. A couple of years, ago, they asked about the benefits and cost of NAFTA. Overwhelmingly, they had net positive benefits. There were some people, a couple of people that were uncertain and nobody said it was awful. This has been conflated. The negotiation of harm has been inflated with other changes in the U.S. economy. We blame the negative effects of the other changes on trade agreements with Mexico and Canada and other countries. For example, if we look at a manufacturing as a sector of the US economy. It is where it's has had a significant decline in employment but when I ask students, I say, in what year did the U.S. produce the greatest value of manufactured goods? What year did that value reach the maximum, adjusting for inflation. I get 1960s and 1970s but the correct answer is last year. It is constantly going up. We are producing far more manufactured goods today than we ever had in our history but we are doing it with far fewer workers. This is because of technological changes increases in productivity that have eliminated the need for lots of assembly workers and other types of manufacturing jobs that used to exist in the 1950s and 60s. Those jobs are not coming back. You can negotiate with NAFTA with Canada and Mexico and that will not bring those jobs back in any meaningful sense. In the extent that it might bring back jobs, it will reduce the standard living of Americans by making goods more expensive.I've been speaking with the economics professor. Jim, thank you.You're welcome. Thank you.

The Trump administration on Wednesday will start to renegotiate the North American Free Trade Agreement with Canada and Mexico. And despite very tough talk about NAFTA during the campaign, it appears the administration has backed away from a major assault on the decades-old trade deal.

And that is a relief to businesses in all three countries.

During the presidential campaign, Donald Trump clearly tapped into frustration about workers who had lost jobs in manufacturing. And he painted NAFTA as one of the central villains responsible for stealing Americans jobs.

"NAFTA was the worst deal ever made in the history of the world," he said. "It was a one-way highway out of the United States."

Upon taking office, President Trump followed through on his pledge to scuttle another trade deal — the Trans-Pacific Partnership. But by April, it was becoming clear that NAFTA would be different.

"I was going to terminate NAFTA as of 2 or 3 days from now," Trump said, but, he said, the president of Mexico and the prime minister of Canada "called me and they said, 'Rather than terminating NAFTA, could you please renegotiate?' "

A lot of U.S. manufactures, agricultural companies and other businesses don't want the president to throw out the agreement. Analysts say most U.S. industries support NAFTA because the deal has increased U.S. exports to Canada and Mexico.

And it appears the administration is hearing that message.

"I decided rather than terminating NAFTA — which would be a pretty big shock to the system — we will renegotiate," Trump said.

So what kinds of changes are on the table?

"We see the changes as departing from much of the rhetoric of the campaign," says Jaime Reusche, a vice president at Moody's who follows Mexico. "We see them as relatively modest."

He says the U.S. is looking to get tougher enforcement of environmental and labor regulations in Mexico.

There will also be an effort to update NAFTA with regard to all the information-age technologies and products and issues that didn't exist when NAFTA was created.

Also on the to-do list: changes to the dispute-resolution process involving the three countries.

But as far as making really big changes to NAFTA, Reusche says that to understand how hard that would be to do, just look at that little switch on your car door that makes the window open.

Those switches "start off as small components in Asia which are then imported and brought over to Colorado. In Colorado, they are made into a capacitor. The capacitor then goes over to Mexico," he says.

And he says the components cross back into the U.S. or Canada and back to the U.S. or Mexico again before finally being part of a finished car. So multiply that by thousands of products across a slew of industries — the root system that has been laid down is an immensely complex web of interconnected business relationships across both borders.

"Perhaps it's a parallel to the health care issue where they realized to actually be able to make significant changes that don't hurt anybody, it becomes very challenging to actually change," Reusche says.

Of course, regardless of what the administration's trade officials have said they want to do, it's not too much of a stretch to think that the president might make news with a tweet or statement that catches the negotiators on all sides off guard.

"Well, I guess the thing about a wild card is it can go in either direction," says Caroline Freund, with the Peterson Institute for International Economics. "So on the one hand if Trump insisted that Mexico pay for the wall as part of the NAFTA negotiations, that would derail the negotiations completely."

But she says on the other hand, the president might be able to nudge negotiators in a useful direction, too.

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