Renegotiating trade agreements, undoubtedly, will be one of the issues that President Trump will face fierce opposition on. But why does Donald Trump want to reform these trade deals?
Free trade is meant to open up markets between different economies. NAFTA, for instance, allows Mexico the ability to sell their products in the United States without any tariffs attached and the US the same ability in Mexico.
Not having tariffs is great for businesses that export because it opens new markets and increases revenues. This leads to job creation. But it’s not so great for businesses that have new foreign competitors importing cheaper goods. This leads to job losses. Overall, experts tell us that free trade is a net gain for America because it creates more jobs than it loses.
The question should be, though, can NAFTA be made better? It may produce a net job gain across society, but do we really have to lose as many manufacturing jobs as we have. Can we protect US jobs and at the same time uplift Mexico?
One of the goals of NAFTA was to modernize Mexico’s economy. The hope was Mexico would export goods and not people. Having a modern economy to our south would be beneficial by reducing emigration and having a stable Mexico, which reduces the risk of civil unrest that can arise from developing countries.
US financial markets and politicians beholden to Wall Street favor free trade because it has helped big business improve their bottom line. That is why they do not want President-elect Trump to renegotiate our trade deals. They’re not concerned about US manufacturing disappearing per se, but if it’s the only way that big business can compete and turn a profit in a global economy, then there’s not much choice.
We’ve Been Outsmarted
With our free trade agreements, our trading partners have outsmarted us. They have created environments that are much more competitive than that of the US.
It makes much more economic sense, from a business perspective, to have a plant in Mexico or another country than inside the US. There are less environmental regulations, cheap labor costs, lower taxes and many other benefits.
Manufacturers move to other countries for lower costs so they can remain competitive. But they are abandoning their home country and taking their jobs with them. Because there are no tariffs, businesses can leave the US and then sell their products back into the US. The foreign workers benefit and so do the shareholders, which are good things, but American workers lose in the process. With more and more companies closing shop and fleeing, it has led to many job losses and a lower standard of living.
Countries like Mexico can benefit greatly with a free trade agreement with the United States, but not by taking away our manufacturing base. Free trade with the US allows Mexico to sell to a much larger marketplace. This is how they should benefit with NAFTA.
Other nations should be allowed to compete for manufacturing jobs, but only if there is a level playing field. This can be accomplished by changing free trade agreements to fair trade agreements.
Attract More Jobs
In order for the US to ‘win’ as candidate Trump has advocated, we need to adopt a five pronged approach. First, we need to make America a much more competitive place to do business. This will include some deregulating and lowering of the corporate tax rates.
The second approach is to change our trade agreements from free trade to fair trade. Fair trade will mean that our trading partners would have to follow certain environmental protections, adopt worker’s rights, and increase workers’ wages. This will help to level the playing field.
Third, in order to keep manufacturers from leaving the US to then just sell their products back into the US, Donald Trump has proposed imposing a tax on these companies. He believes that such a policy would prevent any company from leaving in the first place. This wouldn’t involve a foreign country’s goods, so it doesn’t violate the free trade principal. It would just apply to businesses headquartered in the US.
Fourth, our trading partners need to adhere to policies that protect intellectual property. There should be consequences for pirating and counterfeiting.
Lastly, countries like China cannot artificially devalue their currencies for the sole purpose of foreign trade advantage.
In order for a President Trump to bring back manufacturing jobs, he will have to renegotiate our trade deals. The establishment will decry his trade policies and the media will be relentlessly against his plan. Americans, however, elected Trump because of his America first trade positions. The goal will now be to have trade agreements that are fair to all parties.