from Renewing America

The USMCA Breakthrough: The New U.S. Trade Consensus and What it Means for the World

U.S. House Speaker Nancy Pelosi (D-CA) gestures during a news conference on the USMCA trade agreement on Capitol Hill in Washington, U.S., December 10, 2019.
U.S. House Speaker Nancy Pelosi (D-CA) gestures during a news conference on the USMCA trade agreement on Capitol Hill in Washington, U.S., December 10, 2019. Yuri Gripas/Reuters

December 11, 2019

U.S. House Speaker Nancy Pelosi (D-CA) gestures during a news conference on the USMCA trade agreement on Capitol Hill in Washington, U.S., December 10, 2019.
U.S. House Speaker Nancy Pelosi (D-CA) gestures during a news conference on the USMCA trade agreement on Capitol Hill in Washington, U.S., December 10, 2019. Yuri Gripas/Reuters
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In the history of the domestic politics of trade, the breakthrough announced this week on the United States-Mexico-Canada Agreement (USMCA) is a genuine milestone. Following intensive negotiations—involving House Democrats, the Trump administration, labor unions, and the governments of Mexico and Canada—the three countries announced an agreement that will now lead to the ratification of a new trade architecture for North America. Robert Lighthizer, the U.S. trade representative, can fairly claim to have taken a big step in his promise to restore bipartisanship to U.S. trade policy.

Ironically, however, the breakthrough came the same day in which the architecture for global trade—the World Trade Organization (WTO)—was plunged into the greatest crisis of its quarter century history as a result of U.S. intransigence. The United States has crippled the WTO’s capacity to resolve trade disputes among member nations, leaving the future of the organization in serious doubt.

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The question now—can the shaky new U.S. consensus on trade open the door to agreements with other countries? Or has the United States condemned itself to negotiations only with countries so highly dependent on the U.S. market, like Mexico and Canada, that they will submit to one-sided deals?

Robert Putnam, the political scientist, famously argued that international negotiations are a “two-level game.” For international agreements to be reached, governments need not only to negotiate with other governments, but with their own domestic constituents. Agreements can break down at either level.

For trade negotiations, the domestic side of that bargain has been weakening steadily in the United States for some three decades. When the Tokyo Round global trade agreement was ratified by Congress in 1979, the deal passed by a vote of 90-4 in the U.S. Senate, and 395-7 in the House of Representatives. The free trade agreement between the United States and Canada, passed in 1988 was nearly as popular. But the North American Free Trade Agreement (NAFTA), the predecessor to USMCA, passed by just 234-200 when it was put to a vote in the House in 1993. A majority of Democrats voted against their own president, Bill Clinton, in opposing the deal.

From there, Democrats became increasingly skeptical of trade. Republican President George W. Bush won House support for fast-track trade promotion authority by a single vote in 2001, with just twenty-one Democrats voting in favor. The Central American Free Trade Agreement (CAFTA) passed by two votes in 2005 with the support of just fifteen Democrats. Labor union opposition to the Trans-Pacific Partnership (TPP), a huge deal that would have freed up trade among the United States, Japan, and ten other Asia-Pacific nations, was a big reason that Democratic president Barack Obama could not get the agreement through Congress before he left office. The newly-minted President Donald Trump pulled the United States out of the deal on his third day in the White House, calling it a sell-out of American interests.

In the context of that history, the new USMCA is a big deal indeed. Democratic House Speaker Nancy Pelosi has voiced her strong support. AFL-CIO President Richard Trumka has endorsed the deal, the first time labor unions have backed any trade pact since the tiny U.S.-Jordan deal in 2001, and the first time they have supported any trade agreement of consequence since the Kennedy Round of the General Agreement on Tariffs and Trade in the 1960s.

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The deal came after a long back and forth between House Democrats and the Trump administration, in which Lighthizer supported the Democrats on issue after issue. The new USMCA includes a long wish list of Democratic trade priorities, including tighter rules of origin for car manufacturing, the virtual elimination of investor-state dispute settlement, intrusive provisions aimed at strengthening independent labor unions in Mexico, stronger protections for environmental laws, and weakened protection for pharmaceutical patents. Pelosi and the House Democrats repeatedly praised the Trump administration’s willingness to work with them on the deal.

The politics have changed profoundly in the Republican Party as well. Had a Democratic president tried to push through such changes in USMCA, Republicans would have denounced the deal as a socialist abomination. It goes much further to address Democratic concerns than Republicans and their big corporate backers had ever been willing to consider. Many Republicans opposed Obama’s TPP, for example, because it was seen as too weak in protecting the interests of pharmaceutical companies, but the USMCA does even less for the drug companies than TPP. Yet Republicans will ignore the complaints from the industry and vote for the deal anyway. Trump has remade the GOP into a party of economic nationalism, and his congressional supporters will follow lockstep in approving the USMCA.

What does this mean for the rest of the world? It will not have gone unnoticed that Canada and Mexico had to negotiate twice to get this deal—first with the Trump administration, and again with House Democrats. Mexico in particular was forced to swallow a series of provisions on labor rights that could be seen as threats to Mexico’s sovereignty. But both Mexico and Canada are so dependent on the huge U.S. market that they had no choice but to find a way to yes. Richard Neal, the Democratic chairman of the House Ways and Means Committee, said candidly: “They conceded just about every point we asked for.” He went on to say the USMCA would now be “a template for future trade agreements.”

But if this new hybrid of Trumpian nationalism and Democratic progressivism is what it now takes to do trade deals with the United States, there may be very few takers. China, for instance, has so far resisted the Trump administration’s demands for wholesale reforms to its economic model—demands that enjoy widespread support among both Republicans and Democrats. The European Union would support many of the Democratic objectives on labor, environment, and investor rights, but has resisted Trump’s demands on agriculture and the U.S. trade deficit with Europe.

In the WTO, the Trump administration’s complaints over what was seen as over-reach by the Appellate Body, the final court of appeal in trade disputes, were shared by the Obama administration. But the United States has been unable to persuade other WTO members to undertake big reforms, and instead has let the Appellate Body die by refusing to permit the appointment of new judges. Democrats in Congress have yet to raise a whisper of protest. And so other countries are now scrambling to find new ways to resolve trade disputes among themselves rather than acceding to U.S. demands.

The genius of Putnam’s theory was to show that international agreements only come about, and can only be sustained, when both levels—the domestic and the international—line up properly.

With the USMCA deal, the United States may have found a way back to bipartisan consensus on trade. But it may also be a very lonely spot.

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