China-US trade

The Five Lessons of NAFTA Negotiations

The Five Lessons of NAFTA Negotiations

The third lesson is that the details matter. Some of the provisions that are currently being ignored by commenters on NAFTA are buried deep in the texts and schedules.  These may turn out to be deeply consequential for NAFTA parties.  Some may also affect outside parties.  As an example, the auto rules of origin require a significant and growing share of autos, trucks, parts, components, steel and aluminum to be made within NAFTA (with more expensive labor inputs as well).  For suppliers based outside of NAFTA, this is going to be extremely problematic or even catastrophic.  These orders could be cancelled outright and never replaced. Alternatively, NAFTA 2.0 could force a renewed look at offshoring or sourcing entirely for export.  Either way, existing supply chains are likely to be under severe stress.

The fourth lesson is that NAFTA contains some problematic provisions that might spread elsewhere.

The Challenges of Fighting--and Winning--a Trade War

Second, is the “punishment” appropriate for the “crime?”  The penalties are all found in tariffs to be imposed on American firms and American consumers.  How will tariffs on goods result in changes in IP policies inside Chinese companies?  Or how will tariffs imposed on US consumers alter decisions in China about technology transfer?  Third, the original use of Section 301 was meant to be about negotiation, not about punishment.  But the Trump team discontinued the primary mechanism for US-China talks more than 8 months ago and has not resumed negotiations under any other pathway.  Hence, even if China had wanted to head off these tariffs through a negotiated solution, there would have been no way to do so.  Now, the Trump team has gotten 301 entirely the wrong way round—punishment first and talk later.