President Trump may yet deliver on one of his most ambitious campaign promises: a revised North American Free Trade Agreement.
Earlier this week, the U.S. and Mexico agreed to a string of revisions to revamp the agreement. The remaining stumbling block is Canada, the other signatory to NAFTA. It just rejoined negotiations after leaving in a huff in May, and it appears hung up around one of Trump’s demands in particular: that the new NAFTA have an expiration date of 16 years.
Now, there are many silly ideas in the proposed revisions to NAFTA — or UMTA, as Trump would call it — but a sunset provision isn’t one of them. If Canada wants to defeat the new agreement, this isn’t the hill to die on.
First, a 16-year sunset clause is actually a pretty major concession on the White House’s part. Under Trump’s initial demands, the deal would have automatically expired after only five years unless the three countries got together to actively renew it.
Neither Mexico nor Canada was particularly keen on this arrangement. «I had to highlight that there was no possibility of any Canadian prime minister signing a NAFTA deal that included a five-year sunset clause,» Canadian Prime Minister Justin Trudeau said back in May. But after Canada stepped back, letting Mexico and the U.S. hash out their differences, it sounds like Mexican President Enrique Peña Nieto convinced Trump to back down.
So the new deal not only reportedly includes the longer life span, it even has an option for all three countries to revisit the arrangement after six years, and ultimately to renew it for another 16 years. The latter idea — a pre-arranged time to meet and review the results of the trade deal, rather than a hard stop date — was actually floated by Mexico and Canada awhile ago. It looks like the final compromise that Mexico and America reached was to include the automatic review and then push the sunset date way back rather than get rid of it entirely.
Will that be enough to get Canada on board?
Well, other changes Mexico and the U.S. agreed to were largely about protecting American manufacturing workers from competing with lower-wage workers to the south. That will benefit Canada as well, which should sweeten the pot.
Then there’s also the idea that sunset provisions are completely reasonable.
Conventional wisdom says they’re bad because they create economic uncertainty. «Sunset clauses have never been included in U.S. trade agreements for the simple reason that they undercut the basic economic benefits of the deal,» Jeffrey Schott wrote in 2017, back when Trump was demanding a five-year limit.
But here’s the thing: Economic uncertainty is an extraordinarily slippery thing to actually pin down. A few years ago American economists tried to quantify it using the expiration of certain tax policies and discovered it was basically impossible to do.
So why do we keep insisting this unquantifiable idea is real? Well, many of the economists and politicians who work on trade spend a lot of time around business leaders and owners of capital. From that perspective, it’s a natural assumption that investment — and, more specifically, the brilliance of the people doing the investing — is the driving motor of economic growth. I’m sure business executives and wealthy investors find ephemeral laws and uncertainty about the future extremely vexing. Thus, everyone assumes that if investors are vexed, the economy is harmed. But it’s really hard to find any evidence of this theory in economic data.
More to the point, if you have a problem with uncertainty then you have a problem with democracy. The governments of both America and Canada are changing laws, policies, regulations, and governing regimes all the time. «It’s true that there is a conflict between business confidence and democratic freedom,» George Monbiot wrote at The Guardian in June. But the history of «free trade» deals like NAFTA is replete with efforts to shackle democratic decision-making while giving capital free rein.
Liberalized international trade is supposed to benefit everybody, not just the investor class. If that’s the case, then regular expirations and renewals for trade deals should not be an issue. Democratic representatives would recognize the benefits and transform expiration-and-renewal into a routine affair with predictable outcomes. That defenders of NAFTA and other such deals don’t trust this process suggests they don’t really believe their own sales pitch.
At any rate, the Canadian government likely only has days to make up its mind, due to the way political events in Mexico have a coincided with a congressional review. As a practical matter, it seems absurd to think Canada could agree to such a complex collection of trade revisions under this kind of time pressure. Furthermore, the Canadian prime minister is under a lot of political pressure not to cave to Trump’s bullying.
But at the same time, Trudeau needs to ask himself if he really wants to side with the conveniences of capital over democratic accountability, just so he can play the part of Trump’s foil.