The USMCA quest for ‘America First’ world trade

President Trump seeks to redefine all major free trade agreements on the basis of U.S. economic and geopolitical leverage.

In these efforts, the United States Mexico Canada Agreement (USMCA) is likely to serve as a blueprint.

From NAFTA to U.S. First North America

Despite all Trump’s hyperbole, the USMCA reads like a mix of Clinton’s NAFTA and Obama’s Trans-Pacific Partnership (TPP). Within North America, the treaty will tighten current restrictions on North American vehicle content and introduce new rules for manufacturing in high-wage factories, mainly in the U.S. and Canada, though it may leave major supply networks largely intact. Moreover, NAFTA’s dispute settlement mechanism, which the U.S. would have liked to eliminate, will carry over into the USMCA.

To investors, businesses and consumers, the net effect means rising costs.

Internationally, the effects will be more ambiguous but potentially consequential. The contract is mined with fine-print clauses designed against possible Canadian or Mexican deals with a “non-market economy” (read: China) – which, through the USMCA, Trump would like to extend into all other major U.S. free trade agreements.

What’s worse is that some provisions could make it easier for companies to challenge climate and environment regulations in the three countries, even before they are adopted. In this way, the USMCA has the potential to extend the Trump administration’s pollution agenda and thus prolong its climate damage legacy for years after he leaves the office, despite the just-released UN (IPCC) warning about impending global climate risks.

From the failed FTAA to U.S.-South America trade?

In the 1990s, President Clinton hoped to extend the NAFTA into a Free Trade Agreement of the Americas (FTAA). Venezuela’s Hugo Chavez condemned it as a “tool of imperialism.” Latin America’s leaders, including then-presidents of Brazil, Luiz Inácio Lula da Silva, and Argentina, Néstor Kirchner, demanded the pact eliminate U.S. agriculture subsidies and offer access to South American producers to U.S. markets. Yet, instead of opening South America to free trade, the FTAA split the region into two blocs, as President Lula had predicted.

Like the Reagan administration in the 1980s, the Trump White House is willing to resort to hard power and is now in a better position to superimpose U.S. trade terms on South America.

After the ‘soft coup’ in Brazil and the controversial imprisonment of former President Lula to prevent his likely victory in the 2018 presidential election, the first-round triumph of the extreme-right ex-paratrooper Jair Bolsonaro bodes well for U.S. efforts. Bolsonaro is an admirer of its military dictatorship (1964-85), which heralded the rise of Chile’s Pinochet, Latin American juntas and Operation Condor; the U.S. backed campaign of political repression and terror by right-wing dictatorships. In Argentina, the pro-U.S. President Mauricio Macri has undermined the economy with a $50 billion deal with the International Monetary Fund (IMF) that led interest rates to a world record 60 percent.

In brief, the bargaining position of the key South American economies is currently significantly lower than it was only a decade ago. Nevertheless, an ‘America First’ South America deal will not materialize without resistance, thanks to Trump’s controversial immigration policies, and U.S. withdrawal from international trade and climate change agreements.