One of the key promises of President Donald Trump’s campaign in 2016 was that he would build a wall on the U.S.-Mexican border, through which an estimated 60 percent of illegals pass. He also promised that Mexico would pay for it, a claim that has received much mockery and derision from the left. He promised that he would bring back jobs from Mexico, and reduce our trade deficit with the nation on our Southern border.
But he who laughs last, laughs best, it would seem. While the mainstream media was busy talking about the meeting between America and Mexico, they ignored that Mexico agreed to close the ‘NAFTA loophole’ and ensure that Mexico wouldn’t be a backdoor for bringing Asian goods into the American market. In doing so, Mexico signaled that Trump has the upper hand, and that Mexico has no problem with paying for the border wall, albeit in a roundabout manner. They also heralded the return of jobs to the United States of America.
The North American Fair Trade Agreement (NAFTA) is a trade agreement negotiated by Bill Clinton which binds Mexico, America, and Canada together. It created a trilateral trade bloc in North America.
However, as NAFTA currently stands, it could serve as a means of undermining tariffs. Rather than working out trade deals with the United States, it allowed Mexico and Canada to act as a doorway to the lucrative American market for nations not party to NAFTA.
Asian companies, rather than negotiate with the American market or abide by American regulations, simply opened up facilities in Mexico and Canada. They then shipped products or parts there, assembled the product in one of the NAFTA nations, and shipped it across the border under NAFTA rules.
In this way, Asian, and occasionally even European companies managed to bring goods into the United States without paying tariffs, taxes, and without any heed to some regulations.
But now, in a rush to get a deal through, Mexican Economy Minister Ildefonso Guajardo appears to be ready to make a deal that would stop this practice.
Guajardo, along with Chrystia Freeland of Canada, has been meeting with the United States’ representative, Robert Lighthizer, hoping to prevent the United States from leaving the NAFTA agreement.
After months of work renegotiating the NAFTA agreement, teams of experts on international trade and law from the United States, Mexico, and Canada have successfully renegotiated 10 chapters of the original NAFTA deal.
On Thursday, however, they will tackle the contentious topic of whether or not they must support tariffs put in place by the United States, mirroring such tariffs against states that they do not have prior trade agreements with.
Mexico has signaled that it is willing to take such a step, rather than risk the loss of the NAFTA deal. It’s in their best interest to do so, after all; America is a nation of consumers, and Mexico is well-positioned to move its own products into the country.
In exchange for enforcing tariffs on metals put in place by President Donald Trump, the Mexican and Canadian governments hope to avoid facing the same tariffs the rest of the world does when trading with the United States. Under current trade agreements, they are both exempted from the tariffs.
The willingness of the Mexican and Canadian governments to enforce tariffs passed by the United States by mirroring them means that the nations will essentially be working to enforce American tariffs on products.
Of course, by enforcing these tariffs, they will lose business. There’s no point in building a facility in Canada or Mexico to assemble a motorcycle built in an Asian nation if the same tariffs apply no matter where the motorcycle is brought into the country, after all.
And with no preferential treatment in the American market, there’s no point in building the motorcycle in Mexico at all.
Why, at that point, the hypothetical motorcycle maker would be better off either building the motorcycle in the United States, or simply shipping it directly to the U.S. for assembly, rather than paying the tariffs when it is imported into Mexico (or Canada) and then paying shipping costs again to bring it to the American market.
The difference in tax income, new jobs, and production work that the United States is likely to see from the deal is more than enough to pay for President Donald Trump’s promised border wall, and then some.
At this point, it seems like Mexico and Canada have two options.
The first option is that they reject the terms the United States offered them, and refuse to help enforce the tariff. In that case, the United States could (and likely would) withdraw from the NAFTA agreement arranged during the Clinton years, and goods from Mexico and Canada, as well as from other states without other agreements in play, would be subject to the tariff.
Or, Canada and Mexico could accept the terms. This would be the most profitable for them, allowing them continued access to one of the most lucrative markets in the world on preferential terms. It would also prevent foreign nations from bringing goods into the USA while avoiding tariffs.
What will happen when trilateral negotiations resume on Thursday is anyone’s guess. However, either way, the United States is likely to reap financial benefit, and more than enough of it to pay for the border wall. It will also bring back production jobs to the United States, and put American workers back on the job.