There is a key issue in every NAFTA discussion that is omitted purposefully. The issue always hidden is that NAFTA is not a North American “Trade Bloc”.
Most people mistakenly equate NAFTA with other multi-nation trade partnerships like the EU (European Union). The NAFTA partnership is nothing like the EU trade bloc; it is not even close.
Within the EU example, each nation is committed to only trade with outside nations on terms of agreement within the trade bloc. All trade parameters must meet and comply with the terms within the EU trade agreements. The terms of trade inside the group are connected to the same terms outside the group. It is an agreement between themselves and their commerce toward all other external nations.
However, in NAFTA, the Canadian and Mexican trade ministers can negotiate freely with outside nations. There are no restrictive parameters on their independent decisions. NAFTA is more similar to an access agreement with *only* terms of internal trade and commerce between the U.S., Canada and Mexico subject to the agreement. NAFTA is only an agreement between the U.S., Canada and Mexico and does not extend to external nations.
If France wanted to negotiate trade with China on a specific product -or sector- they have to comply with, and go through, the EU trade group. China would have to apply the same terms to France as all other nations within the trade bloc. However, if Mexico wants to negotiate with China on a specific product, they do not need to check with the U.S., they can cut any deal they want. This is the basic issue underlining the NAFTA ‘fatal flaw’.
If the U.S. wanted to apply a tariff to Chinese cars the Chinese can work around the issue.
Chinese cars could be trans-shipped into Mexico and/or Canada for delivery under NAFTA to the U.S. market. The only way to block this issue is to apply auto tariffs to Mexico and Canada. This is currently the reason why Canada and Mexico are facing steel and aluminum tariffs.
As a consequence of NAFTA not being a trade-bloc, it has been exploited exclusively for access to the U.S. market. Over the past 30 years Canada and Mexico have structured their manufacturing economy based on unlimited access to the U.S. market. Mexico and Canada assemble foreign products shipped to them as parts, then send the finished products into the U.S. market. Hence, Canada and Mexico demand high content of cheap foreign parts in any internal NAFTA manufacturing agreement. There is zero benefit to the U.S. worker or manufacturing base under this structure.
This exploitative approach, a backdoor to the U.S. market, was the primary reason for massive foreign investment in Canada and Mexico; it was also the primary reason why candidate Donald Trump, now President Donald Trump, wanted to shut down that loophole and renegotiate NAFTA. However, with hundreds-of-billions already invested by the multinational banks and corporations – they are fighting to retain the status quo.
This loophole was the primary reason for U.S. manufacturers to relocate operations to Mexico. Corporations within the U.S. Auto-Sector could enhance profits by building in Mexico or Canada using cheap parts imported from Asia/China. The labor factor was not as big a part of the overall cost consideration as cheaper parts and imported raw materials.
From the POTUS Trump position, NAFTA always came down to two options:
Option #1 – renegotiate the NAFTA trade agreement to eliminate the loopholes. That would require Canada and Mexico to agree to very specific rules put into the agreement by the U.S. that would remove the ability of third-party nations to exploit the current trade loophole. Essentially the U.S. rules would be structured around removing any profit motive with regard to building in Canada or Mexico and shipping into the U.S.
Canada and Mexico would have to agree to those rules; the goal of the rules would be to stop third-party nations from exploiting NAFTA. The problem in this option is the exploitation of NAFTA currently benefits Canada and Mexico. It is against their interests to remove it. Knowing it was against their interests President Trump never thought it was likely Canada or Mexico would ever agree. But he was willing to explore and find out.
Option #2 – Exit NAFTA. And subsequently deal with Canada and Mexico individually with structured trade agreements about their imports. Canada and Mexico could do as they please, but each U.S. bi-lateral trade agreement would be written with language removing the aforementioned cost-benefit-analysis to third-party countries (same as in option #1.)
All nuanced trade-sector issues put aside, the larger issue is always how third-party nations will seek to gain access to the U.S. market through Canada and Mexico. [It is the NAFTA exploitation loophole which has severely damaged the U.S. manufacturing base.]
Now, watch the gaslighting: