Trump's USMCA Agreement: A Populist Paradox

The rhetoric of economic protectionism often invokes the welfare of the citizenry as justification for its actions. Serving citizens’ interests—the apex of virtues in the democratic pantheon—acts as an indulgence for a bevy of sins and simultaneously places opponents of actions that invoke this goal in a rather dubious position. But those actions undertaken in the people’s name also often sideline them in the decisions that most directly impact their lives.

Actors at the highest levels of society imbue into law their ideas about what values should be promoted through private action, creating a legal and economic framework with which private citizens are forced to contend. Often, this abrogates the ability of citizens to make choices that promote their own self-determined set of values, which is troubling not only because it infringes upon freedom of conscience but also because politicians frequently do not understand the private arenas in which they’re meddling and, unlike the citizenry, are insulated from the harm their actions do.

In a recent address to the World Economic Forum at Davos, President Trump touted the United States-Mexico-Canada Agreement (USMCA) and his trade deal with China as “the two biggest trade deals ever made.” Predictably, he invoked his trite and tired vein of populist rhetoric, which allows himself to wrap his meddling actions in the cozy mantle of economic protectionism:

“A nation’s highest duty is to its own citizens. Honoring this truth is the only way to build faith and confidence in the market system. Only when governments put their own citizens first will people be fully invested in their national futures. In the United States, we are building an economy that works for everyone, restoring the bonds of love and loyalty that unite citizens and powers nations.”

Unfortunately for the president, this is not what USMCA accomplishes.

Economic Illiteracy and the USMCA

The USMCA, like the many trade deals that have gone before it, is not economically neutral: it is designed to promote certain practices and behaviors. Of particular concern are the USMCA’s new regulations governing the trade of automotive vehicles between its signatory countries, which is likely to reduce the amount of trade that goes on, affecting people’s jobs and the cost of material goods.

But the injustice of these affects of political meddling in private markets is amplified by an injustice particular to President Trump’s brand of quasi-mercantilism: his illiteracy on matters of trade.

The president has famously railed against trade deficits (the value of a country’s exports minus the value of their imports) and has shown no sign of understanding that this actually represent a net positive for domestic economies. And yet, despite his braggadocio and addiction to superlatives, the self-proclaimed greatest negotiator in history has just signed a trade deal that does not even accomplish a reduction in trade deficits.

According to analysis done by researchers at the International Monetary Fund, USMCA will actually widen existing trade deficits for Canada and the United States. The deal is projected to decrease the amount of trade between its signatory countries by roughly $4.4 billion, causing the existing trade surpluses between Canada and the United States and Mexico and the United States to widen.

This reduction in trade comes as a result of stringent new rules of origin, which require that 40% of the materials used in a passenger vehicle and 45% of parts used in a pickup truck or cargo vehicle are made by workers who earn at least $16 per hour. Currently, the average hourly wage of Mexican auto workers stands at roughly $3.38. The IMF reports that this requirement likely will result in vehicle production shifting to member countries where wages are already closer to the requirements. At the same time, new USMCA rules regulating labor value content and regional value content will make the cost of trading under USMCA exceed the benefits, meaning that “paying [member friendly nations] tariffs on imports from Mexico will be the preferred strategy.”

Effectively, what this means is that the terms dictated by the trade deal Trump claims are going to be so beneficial to U.S. workers are so onerous that it will be easier and more economically beneficial to Canada and Mexico to ignore the trade deal and instead choose to pay import tariffs on goods that do not comply with USMCA regulation. This, coupled with the irony of Trump’s landmark trade deal actually widening U.S. trade deficits—which have been the principal economic bogeyman for the tenure of his office—would be laughable if it were not for the disastrous real world consequences, which include a reduction in trade and a likely increase in the cost of production and final price of goods, USMCA is likely to have. The rhetorical paradise of which Trump speaks—of universal love coming through a politically brokered economy that works for all citizens –is hardly comfort for those in the manufacturing and automotive sectors of North America whose livelihoods are thrown in chaos by USMCA.

Political Abuses and the USMCA

Within the United States, the problems surrounding USMCA are compounded. USMCA was passed through Congress using a process known as trade promotion authority (TPA).

The Constitutionality of this process is murky. While the power to negotiate treaties lies with the president—subject to the approval of the Senate—Article I, Section 8 gives Congress “power to lay and collect taxes, duties, imposts and excises.”

Historically Congress exercised this power by voting to set tariff rates. But in 1934 Congress passed the Reciprocal Trade Agreements Act, which allowed the president to enter into trade agreements “that reduced tariffs within preapproved levels, which did not require further congressional action.”

This practice continued into the 1960s when the Cold War made nontariff barriers an important consideration in trade talks. According to the Congressional Research Service:

“Congress found it necessary to alter the delegated RTAA tariff authority to require implementing legislation to authorize changes in U.S. law necessary to meet these new obligations. Thus, preapproval was no longer an option. Given an implementing bill could face a potential amendment that could alter a long-negotiated agreement, Congress adopted fast-track authority in the Trade Act of 1974 to provide expedited legislative consideration.”

Procedurally, TPA expedites a bill’s passage through Congress; the relevant bill receives mandatory introduction, automatic discharge from the committee with jurisdiction relevant to the bill’s subject matter, is limited in the amount of floor debate time it receives and is ultimately approved by a simple up or down majority vote.

Obviously, fast-track authority, more commonly known today as trade promotion authority, limits the amount of input Congress has, which is why it can only be invoked when a particular set of circumstances is met.

Proponents of TPA argue that limitations upon Congress—including a moratorium on amendments—are necessary so negotiators in foreign countries are not scared away by the frenetic and often divisive American legislative process:

“U.S. trade partners might be reluctant to negotiate with the United States, especially on politically sensitive issues, unless they are confident that the U.S. executive branch and Congress speak with one voice, that a trade agreement negotiated by the executive branch would receive timely legislative consideration ,that it would not unravel by congressional amendments, and that the United States would implement the terms of the agreement reached.”

But, in order to ensure that its voice still play a role in trade negotiations, Congress has advanced a specific set of trade objectives that must be advanced in order for TPA to be invoked. When TPA most recently came up for reauthorization in 2015, Congress identified three categories of objectives the president must advance in order invoke fast-track authority: overall objectives, principal objectives and capacity objectives. Overall objectives are “broad goals that encapsulate the “overall direction trade negotiations are expected to take, such as fostering U.S. and global economic growth and obtaining more favorable market access for U.S. and global economic growth and obtaining more favorable market access for U.S. products and services.” Principle objectives are “more specific and are considered the most politically critical set of objectives, the advancement of which is necessary for a U.S. trade agreement to receive expedited treatment under TPA,” while capacity building objectives “involve the provision of technical assistance to trading partners.”

Because TPA does not allow Congress to debate or introduce amendments, adherence to these objectives is important. It is the only way that Congress—and by extension the constituents its members represent—exercise their Constitutionally-mandated control over trade policy. These limitations are placed out of fear that. But multiple red flags have been raised over whether USMCA, which was passed through Congress using TPA, actually qualified for fast-track approval. Chief among these is a suggestion that these trade objectives were not adhered to and that the majority of Congress was excluded from the negotiations process, at which point Congress does have the ability to give input.

As Halie Craig, writing for the R Street Institute, documents, high-ranking Democrats on the House Ways and Means Committee had a disproportionate amount of influence over the final agreement:

“Over a period of several months, they negotiated with the USTR and the Mexican government such significant changes to the agreement that a protocol of amendments had to be signed by all three parties on Dec. 10, 2019. Implementing legislation was made public three days later—the same day that the White House formally transmitted it to the House for introduction and it became procedurally unamendable under the TPA.”

The exclusion of other Congressional voices is not an issue of partisanship, as the cooperation between House Democrats and the president they were simultaneously working to impeach should demonstrate, but an issue of representation.

Fast-track authority is granted with the assumption that members of Congress speak with on voice. This voice is echoed by the president, in no small part because he is supposed to abide by the trade objectives outlined by Congress. But that is difficult to do when members of Congress, whatever their party membership, are excluded from the treaty-making process.

The Populist Paradox

Political representation is something of an abstract construct: elected officials, particularly those who serve in legislatures, act to promote the welfare of their constituents. But this is something of a Sisyphean task: constituencies do not exist as monistic blocs of people with identical backgrounds and identical views on all political and economic issues. Often, representation amounts to elected officials attempting to divine the interests of a majority of their constituents and then acting accordingly. There exists in representative systems, then, an innate degree of separation between people and their interests. This divorce is compounded by the degree to which power is centralized: the judgment of one person, whose intellect determines what problems plague what people most exigently and who prioritizes the order and ways in which needs are to be addressed, is elevated. In contemporary American politics, this takes the form of President Trump playing philosopher-king with USMCA.

But the question laudability of this populist instinct to take up and assuage the burdens of this people runs into problems once it moves from rhetoric to action. USMCA is likely to lead to a multi-billion-dollar reduction in trade, which has real-world consequences for citizens, including likely price increases that make money go less far. This is a very real cap on the productive capacity of people in the signatory countries, who must now prioritize need as they find their resources are less efficient. While they were not consulted on USMCA, they still must face the consequences of decisions made in their name. For example, the agricultural bailouts Trump touts were necessitated by the ever-escalating trade war he provoked with China. Shockingly, central planners rarely exercise better judgment than people whose livelihoods are bound up in an industry. Farmers are devoid of real control in the policy making process, yet they faced the consequences, as did those who purchased their products.

Populism, which is integral to the president’s trade agenda and forms the keystone of USMCA, encourages giving over decision-making power to authorities outside and above the self. In Davos, the president spoke of trade deals as governments putting citizens first as a way to better national futures. This is collectivist rhetoric; it marries social values and political actions. It is transactional and utilitarian: tying a citizen’s productive ability to the ability to foster national growth. No wonder so little attention is paid to the ability of citizens to have input in the values that underlie trade deals like USMCA: their efforts are only valuable to the degree they cater to politicians’ dreams of global supremacy.

This is the fundamental paradox of populism: it works to undermine the people it claims to uplift, as is evident in the crowning jewel in the president’s diadem of economic protectionism. When this rhetoric is translated to political action the end result is a restriction of choice and the elimination of input from the people. This is particularly true in the negotiation of USMCA where the elected officials responsible for giving voice to the people was largely sidelined.

© 2018 by Zink Publishing Inc.

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