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--:-- Sean Rameswaram: It's my great honor to announce that we have successfully completed negotiations on a brand new deal to terminate and replace NAFTA. Jen Kirby, you report on international news for Vox and there is big international news. There's a new NAFTA. Yeah, NAFTA 2.0 or USMCA.
--:-- Jen Kirby: Mmm, rolls right off the tongue there. You know it. So Trump's been talking smack about NAFTA since, as far as I can remember, but it all seemed to come to a head this weekend. Why? Well, that's because the U.S. had a self-imposed deadline of September 30th.
--:-- Sean Rameswaram: The short answer is that the U.S. really wanted to sign this agreement by the end of November because the president of Mexico, Enrique Peña Nieto, was leaving office and the new leftist president, Manuel López Obrador, was taking over.
--:-- Jen Kirby: So the U.S. has this thing called Trade Promotion Authority, TPA, and part of the agreement is the administration gets to negotiate the train deal and Congress has to approve it. But the administration has to let Congress know that a trade deal is coming. So they started that process off.
--:-- Sean Rameswaram: And according to the timeline, they had to deliver the text by or were supposed to deliver the text by September 30th. And Mexico and the United States had already figured their ish out. But the United States and Canada were still lingering.
--:-- Jen Kirby: Yeah. Yeah. And so the U.S. had threatened to go ahead with a bilateral deal just between the U.S. and Mexico and leave Canada out. And pretty much nobody wanted this, particularly Congress. Both Republicans and Democrats were very uneasy about this.
--:-- Sean Rameswaram: So the deadline might have helped push them to get the last minute deal, which made everybody happy that it was a trilateral agreement. And Mexico, the U.S. and Canada were all on board.
--:-- Jen Kirby: OK, so I guess let's get into the headlines of this deal. What were like the major developments of USMCA? Well, there are a ton of them, and everybody's still trying to figure out what's going to happen and how all these things are going to work in the real world.
--:-- Sean Rameswaram: But some of the big ones are definitely involving automobiles, probably the biggest change. Next, you have a bunch of labor protections. And then you have the U.S. had greater access to the dairy market. And then you have Chapter 19, which is a trade dispute mechanism that Canada really wanted. And then you have some intellectual property right protections.
--:-- Jen Kirby: And there's a ton and ton of other ones, but those are kind of the big ones that people are talking about. OK, yeah, let's start with these. So first off, auto industry trumps real into that. Yes, he loves his autos.
--:-- Sean Rameswaram: The big one here is that there are these things called country of origins rules, which basically is raising the amount of parts that have to be manufactured in North America, so in Canada, Mexico, and the U.S. And it's up to 75 percent of car parts have to be manufactured there.
--:-- Jen Kirby: The idea is to keep manufacturing in the U.S. and boost auto production here, but it may make cars a little bit more expensive. And is he boasting that that's a good thing? Oh, he is indeed.
--:-- Sean Rameswaram: Once approved, this will be a new dawn for the American auto industry and for the American auto worker. They will see. They understand.
--:-- Jen Kirby: So how exactly is he doing this? The minimum wage is going up in Mexico? There's another component of this going into effect by 2023. About 40 to 45 percent of component parts of the car have to be made by workers who are making $16 an hour.
--:-- Sean Rameswaram: And that's basically what's standard in the U.S. and Canada. But Mexico, the minimum wage is very low. So the idea is that it would potentially be good for workers in Mexico who will have to kind of perhaps have their wages increased if they're making these components of cars or it will keep jobs in the U.S. and Canada as well because there will be less of an incentive to move south because you'll have to pay workers a certain amount of money in all three places.
--:-- Jen Kirby: Part of the reason this deal was held up for a while was because of Canadian dairy? What was going on there? Oh, Canadian dairy. In Canada, our milk comes in bags.
--:-- Sean Rameswaram: If you've listened to any Trump rally, this is one of his favorite talking points about the unfair trade practices of Canadian dairy market. The United States pays tremendous tariffs on dairy. As an example, 270 percent.
--:-- Jen Kirby: Nobody knows that. We pay nothing. We don't want to pay anything. Why should we pay? basically the long and short of it is the U.S. wanted greater access to the dairy market in Canada they felt that this system in Canada was preventing their farmers from being able to export to Canada so the U.S. won in the NAFTA USMCA negotiations greater access to the dairy market so really it's a good deal for certain dairy farmers in the U.S. it's not a huge opening um It enough that Canada should be able to absorb it as one expert told me
--:-- Sean Rameswaram: But it certainly a victory for Trump since he been talking about it forever And it probably a victory for Canadian consumers who might have a little bit cheaper milk now
--:-- Jen Kirby: What were the other sticking points for Canada? So one of the big things Canada wanted was to preserve what's called Chapter 19. It's renumbered in the new agreement. But it's a dispute mechanism for trade.
--:-- Sean Rameswaram: And basically, the reason that Canada wanted it is because it felt like it was a defense against any sort of U.S. protectionist trade policies. When your trading partner is 10 times your size, you need rules. You need a level playing field.
--:-- Jen Kirby: The idea was if there was an issue for certain types of disputes, it would go to an independent panel as opposed to domestic courts. And Canada felt it would get a better deal that way. And this was a red line for Justin Trudeau. He said so.
--:-- Sean Rameswaram: And the U.S. had wanted to get rid of it altogether. But eventually Trudeau prevailed and he pretty much got what he wanted, which was to keep Chapter 19 intact.
--:-- Jen Kirby: And the last big thing for Canada was steel, right? What ended up happening with the steel tariffs? Canada really objected to Trump's imposition of steel and aluminum tariffs.
--:-- Sean Rameswaram: Under pretext of a 232 national security provision, let me be clear. These tariffs are totally unacceptable.
--:-- Jen Kirby: And they were hoping that through the NAFTA negotiations, the Trump administration would agree to ease off on those. They didn't end up coming away with that victory at all.
--:-- Sean Rameswaram: But what they did get, and Mexico as well, is they did get some protections from auto tariffs, which Trump had also threatened, which would be pretty devastating for Canada and Mexico.
--:-- Jen Kirby: And so they got pretty substantial guarantees that should protect them from auto tariffs in the future. But the steel and aluminum tariffs remain in place for the time being.
--:-- Sean Rameswaram: And then the one thing I'm reading about that I don't really understand is intellectual property. What's up between these three countries and intellectual property?
--:-- Jen Kirby: Yeah, so the U.S. basically made Canada go along with its intellectual property rights, which some critics think are a little too strict.
--:-- Sean Rameswaram: But the copyright went from the life of the author plus 50 years to life of the author plus 70 years. So it's obviously a big increase.
--:-- Jen Kirby: And then certain types of drugs called biologics went up to 10 years, which, you know, may prevent some generic drugs from reaching the market.
--:-- Sean Rameswaram: So it just made tighter intellectual property laws, which are kind of closer to what the U.S. wanted.
--:-- Jen Kirby: So this has not been approved yet by any of the three countries? No. So Prime Minister Justin Trudeau, President Donald Trump and Mexican President Enrique Peña Nieto have to get together and sign it.
--:-- Sean Rameswaram: There's been some reports that they might do that at the G20 in November in Argentina. And then it goes to each of their legislative bodies who have to approve it.
--:-- Jen Kirby: There may be some political hurdles, but for the most part, it seems that nobody really wants to destroy NAFTA. So the hope is that all three countries will approve it, but that probably won't happen until sometime in the next year.
--:-- Sean Rameswaram: So sometime in the next year, we'll actually stop saying NAFTA and we'll start saying... Asamka. We'll see. It's going to be hard to break the habit of saying NAFTA, but Trump managed to muscle his way and get a USMCA deal.
--:-- Sean Rameswaram: Coming up, is the new NAFTA good? Is it great or does it just perpetuate all the things people love and hate about free trade in the first place? This is Today Explained.
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--:-- Sean Rameswaram: Ian Bremmer has feelings about USMCA. Well, I mean, I don't like the new name. It's hard to say. It's USMCA. USMCA.
--:-- Ian Bremmer: And that'll be the name, I guess, that 99% of the time we'll be hearing, USMCA. Has a good ring to it. It starts with the United States, then it goes to Mexico, and then it goes to Canada.
--:-- Sean Rameswaram: And while I wouldn't want the Canadians to think that that was personal, I suspect it is.
--:-- Ian Bremmer: But Ian's feelings aren't limited to the name of this deal. I mean we needed to update We needed to modernize this agreement The world and the world economy has changed an awful lot since NAFTA was signed I think we helped to do that
--:-- Sean Rameswaram: This NYU political scientist thinks it a good deal The way he got there was not pretty. It was somewhat even abusive. And the state of actual personal relations between Trump and Trudeau is pretty poor.
--:-- Ian Bremmer: But I think that would have been the case irrespective of the trade dispute. This deal is incrementally better in a host of different ways. And I think Trump deserves credit for it.
--:-- Sean Rameswaram: He gave Trump credit on Twitter. He said, I'm hardly a Trump fan, but give credit where credit is due. New NAFTA USMCA deal is a win.
--:-- Ian Bremmer: People did not like his tweet. Because people think that Trump is so bad, or should I say people that don't like Trump, are so opposed to him, so viscerally, sort of every bone in their body, that it's important to not give him credit even for something that you would give credit to any other president for.
--:-- Sean Rameswaram: Who do you think are the biggest winners from this new NAFTA deal? That's hard to say. I suppose the biggest winner would be the markets, right? I mean, anyone that was concerned about the Canadian economy, in particular, getting whacked, if there hadn't been a NAFTA agreement.
--:-- Ian Bremmer: And if Trump had decided to play the six-month I'm pulling out of NAFTA card, and then we would have had lawsuits all over the place from all of the American states that have Canada as their leading trade partner. None of that happened, right?
--:-- Sean Rameswaram: Instead, we have not only old NAFTA, but we have a marginally and incrementally better deal. So the big win is the economy, and most importantly, the Canadian economy.
--:-- Ian Bremmer: Trump's a winner, and I think Trudeau's a bit of a winner in the sense that he doesn't have to worry about his economy getting tanked by no NAFTA. And I want to stress, Canada got here because we kept our focus and our collective resolve, even when some were recommending we capitulate.
--:-- Sean Rameswaram: He was able to maintain this Chapter 19 of NAFTA, which is the dispute resolution mechanism that the Americans said they wanted gone. And that certainly helps Trudeau for Canadian lumber, for example, and most of Trudeau's dairy supply management system does stay intact, which is also important on balance for Trudeau.
--:-- Ian Bremmer: And how are things for Mexico now? They made a lot of concessions to the United States. I mean, more than the Canadians did. And it's unclear if Mexican wages really are going to go up across the board.
--:-- Sean Rameswaram: though AMLO personally, the new Mexican president who's coming in shortly, would like them to. But again, if there hadn't been a deal, this was going to be a huge problem.
--:-- Ian Bremmer: The Mexicans were all the way through more interested in getting to yes than the Canadians because they were the ones with the new administration coming in. They were the ones who felt like their economy, their currency was going to get rocked a lot more with the uncertainty of a problematic relationship with the U.S.
--:-- Sean Rameswaram: What does Trump's negotiation of this new deal mean for the ongoing trade disputes we have with China? It certainly provides credibility for Trump, both that he is willing to mete out some punishment, he has a stick, but also that he's capable of getting a deal done.
--:-- Ian Bremmer: It also gets rid of a lot of outstanding conflicts. I mean, this was Trump a few months ago was looking like the guy that couldn't shoot straight on trade. He was blustering against his allies and his enemies equally, and they were all angry at him.
--:-- Sean Rameswaram: Now, he's got a fairly significant deal done. He had the Japanese are in a significantly better place. They're negotiating, improving their bilateral trade ties formally.
--:-- Ian Bremmer: And the United States has decided not to pursue automotive tariffs while they're doing so. Same thing is true with the Europeans. That means they can really focus on China.
--:-- Sean Rameswaram: So I think the Chinese are going to take him more seriously. And I think that, you know, there is a better chance for Trump that come the end of November, when he meets personally with Xi Jinping in Argentina at the G20, that the Chinese will come with something more significant that looks like a gift.
--:-- Ian Bremmer: Now, by the way, I would say that all of this would have looked a lot better for Trump if the first thing he did on trade when he became president wasn't to unilaterally withdraw from the Trans-Pacific Partnership, which would have given the United States a lot more leverage, carrot and stick, vis-a-vis the Chinese.
--:-- Sean Rameswaram: How did Trump's approach help or hurt him, the way he belittled Justin Trudeau? I mean, Canada really rallied behind Trudeau on trade in the past few months.
--:-- Ian Bremmer: Does the stuff matter how he actually treats other leaders while in negotiations? It mattered in the sense that it made it take longer. But ultimately, it didn't matter as much.
--:-- Sean Rameswaram: And the reason for that is because there's such an asymmetry between the American and the Canadian economy. I mean, Trump may be a bully, but he does occupy the bully pulpit.
--:-- Ian Bremmer: And if you're going to be a bully, you better have, you know, sort of some strength to back it up. Trump does.
--:-- Sean Rameswaram: The OG NAFTA, the one Trump talks so much smack about, it was negotiated politely over the course of several presidential administrations, starting with Ronald Reagan in the 80s.
--:-- Ian Bremmer: We live on a continent whose three countries possess the assets to make it the strongest, most prosperous, and self-sufficient area on Earth. And so a developing closeness among Canada Mexico and the United States A North American accord would permit achievement of that potential in each country beyond that which I believe any of us strong as we are, could accomplish in the presence or the absence, I should say, of such cooperation.
--:-- Sean Rameswaram: And this agreement will remove barriers to trade and investment across the two largest undefended borders of the globe and link the United States in a permanent partnership of growth with our first and third largest trading partners.
--:-- Ian Bremmer: Leading into the 90s when it was signed by President Clinton. I believe we have made a decision now that will permit us to create an economic order in the world that will promote more growth, more equality, better preservation of the environment, and a greater possibility of world peace.
--:-- Sean Rameswaram: Listening to Trump, you'd think NAFTA was either a really bad deal or maybe more generously, like, woefully outdated. Was it either of those things? No, it wasn't a bad deal. And I wouldn't say it was woefully outdated.
--:-- Ian Bremmer: And Trump's penchant for exaggeration is by far the greatest that we've ever encountered in an American president.
--:-- Sean Rameswaram: I have long contended that NAFTA was perhaps the worst trade deal ever made. I thought that was the Iran deal. I can't keep track of which deal is worse.
--:-- Ian Bremmer: The Iran deal was one of the worst and most one-sided transactions the United States has ever entered into. But irrespective of which one really occupies number one or number two, the exaggeration is extraordinary in both cases.
--:-- Sean Rameswaram: And in the same way, Trump surely is going to exaggerate just how extraordinary this new NAFTA actually is.
--:-- Ian Bremmer: Is the fact that NAFTA was this terrible deal in the president's eyes and then he just sort of slightly updated it and renegotiated it a sign that NAFTA wasn't such a bad deal to begin with? Of course.
--:-- Sean Rameswaram: It wasn't such a bad deal to begin with. Nobody wanted it to go away. There was a lot of bluster. And that's kind of what you get. That's kind of how he won.
--:-- Ian Bremmer: A lot of people wanted that. And what was it about this deal that made it impossible to just implode? Because the economies are so integrated with each other.
--:-- Sean Rameswaram: I mean, the number of American states and multinational corporations and farmers and automakers and the rest that have very significant long-term equities in keeping this deal intact, that unwinding it was going to be incredibly costly for an awful lot of people on all sides.
--:-- Ian Bremmer: It was going to hurt the economy. Look, it's certainly true that the creation of NAFTA meant that some Americans lost their jobs, right? I mean, jobs definitely went to Mexico that otherwise would have stayed in the United States.
--:-- Sean Rameswaram: And the American politicians didn't do very much for a lot of the people that lost their jobs, which is why we have so much. One of the reasons we have so much polarization in American society today.
--:-- Ian Bremmer: But that doesn't mean the deal was bad. The deal led to much more economic growth. Free trade is objectively a good thing, but it's not good for all people.
--:-- Sean Rameswaram: The government needs to then look at who the losers are and needs to take some of that cash and redistribute it. You have to do that, right? Because otherwise these people get screwed.
--:-- Ian Bremmer: And that's basically what the story of NAFTA and so much of free trade has been over the past four decades.
--:-- Sean Rameswaram: And is this new deal going to do anything to bring those jobs back or redistribute any wealth that came from these free trade agreements to people who were affected by the original NAFTA? The answer to that is yes, a little.
--:-- Ian Bremmer: But let's keep in mind that the bigger displacements for jobs in America today overwhelmingly is automation. It's AI. It's machine learning. It's robotics. It's not free trade.
--:-- Sean Rameswaram: And so, I mean, even if a lot more capital ends up coming back in the United States for manufacturing, I don't think it'll be a lot. I think it'll be a little. I'm not sure that that's going to come with a lot of jobs.
--:-- Ian Bremmer: So there still is this question of what the Americans are going to invest in long term. And, you know, Trump has shown that he's willing to engage in big deficit spending. But it hasn't been in education. It certainly hasn't been in infrastructure.
--:-- Sean Rameswaram: And you need to see not just short-term giveaways in tax, which everyone has benefited from. You could say the wealthy have more than the poor, but everyone's benefited. But that's not going to do much in 10 years and 20 years time for these people that don't have the training to find new opportunities when the old ones have dried up.
--:-- Ian Bremmer: And that is a question that has bedeviled the United States for some time. Obama was no more able to resolve it than Trump has been so far.
--:-- Sean Rameswaram: Ian Bremmer is the host of the TV show GZERO World, and he's the president and founder of the Eurasia Group. It's a political consulting firm.
--:-- Sean Rameswaram: I'm Sean Ramos from this is Today Explained. It's a podcast. Audible has the largest selection of audiobooks on the planet, and right now Audible members get even more exclusive audio fitness programs, audiobooks, and Audible originals with custom-made content.
--:-- Sean Rameswaram: Go to audible.com slash todayexplained or text todayexplained to 500-500.
