President Trump famously called the North American Free Trade Agreement “the worst trade deal ever made.” Bygones. The need to debate that claim has been mooted by the fact that NAFTA’s likely successor—the United States-Mexico-Canada Agreement—now holds that distinction.
There’s a reason that neither “Free” nor “Trade” appears in the agreement’s name. There isn’t much of any new trade liberalization in the deal. Then again, an agreement pursued with import reduction and supply chain repatriation as its main objectives was never going to be an exemplar of enlightened trade policy.
Instead, the deal reflects the shared objectives of the administration’s economic nationalists and Congress’s labor left, which were to strengthen the enforcement provisions and discourage companies from investing and operating factories in Mexico. These inducements come by way of the agreement’s streamlined labor and environmental provisions, onerous “rules of origin” requirements, unorthodox “sunset” provision, and the scaling back of investment and intellectual property protections.
To be sure, free trade and free trade agreements are very different animals. Free trade is an economic ideal and is a condition characterized by the absence of trade barriers. Free trade agreements are political creations built atop mercantilist fallacies and are not about “free trade,” per se. These deals include rules that simultaneously liberalize, divert, and stymie trade, capital, and labor flows. Liberalization is usually the organizing principle, but the specifics tend to constrain the liberalization. Trade barriers are lowered or eliminated in some provisions, while protectionism is baked into the others.
Free trade is about removing impediments that benefit some at the expense of others so that each of us individually has the fullest battery of choices to decide how best to use our own resources. Free trade agreements are about managed trade and labyrinthine rules intended to distribute particular benefits to particular interests.
No agreement illustrates these distinctions as clearly as the USMCA does.
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