A NAFTA Renegotiation Game-changer, Until the Trump Administration Squanders It

Josh Bivens

Josh Bivens Economic Policy Institute

Since the beginning of his presidential campaign, Donald Trump has railed against the North American Free Trade Agreement (NAFTA) as being a bad deal for working Americans. He promised that if he was elected, he would renegotiate NAFTA and secure a “much better deal for all Americans.”

So it’s not surprising that earlier this week, the leader of a prosperous country engaged in NAFTA renegotiations demanded changes to increase workers’ leverage, provide a bulwark against downward wage pressure, and prevent his country’s manufacturing sector from being undercut by weak labor standards. But was this leader Donald Trump? Nope. It was Justin Trudeau of Canada.

Even more striking, the reported change that Trudeau’s government has requested to stem downward pressure on Canadian wages is one that beefs up American labor standards. Yes, the low-wage, low-standard country that Trudeau’s government is correctly concerned about as they renegotiate NAFTA is the United States.

The requested change is ambitious: Trudeau’s government wants an end to so-called “right to work” (RTW) laws in American states. This would clearly be good for American workers. In a nutshell, “right to work” laws have nothing to do with helping people find work—instead they simply ban contracts requiring that workers benefiting from labor union representation pay their fair share for this representation. This ban makes it extraordinarily difficult for workers to join together and form unions in RTW states. As a result, these states have substantially fewer union members and less collective bargaining. The economic evidence shows that RTW laws do not boost employment or economic growth, but do suppress wages.

Why does Canada care about laws in American states that suppress American wages? Most generally, in a global (or even regional) labor market, if your neighbors’ wages are being pulled down, you can be sure that yours will be soon. More specifically, Canada has a large automotive production sector, and auto producers often choose between the United States, Canada, and Mexico in regards to where to open new facilities. In recent years many of these facilities have been opened in RTW states in the American south. From the perspective of a profit-maximizing company looking to keep labor costs as low as possible, the wage suppression resulting from RTW laws may provide an inducement to open new factories in RTW U.S. states rather than Canada.

So Canada has a legitimate stake in requesting this change, and indeed just the request itself is extraordinarily useful. Besides being both ambitious and good for both Canadian and American workers, the Canadian request is clarifying about two vital issues: (1) the historical use of trade agreements to further rig the rules of the economy against workers (in all countries), and (2) Donald Trump’s commitment (or lack thereof) to un-rigging those rules.

Some casual observers of these policy debates might think that it’s odd that any country would ask for a change in a trading partner’s domestic labor law during negotiations about international trade. But NAFTA already does require each country to undertake a host of changes to domestic policies, in ways that tilt in the direction of increasing protection for corporations’ profits. For example, NAFTA extends more-stringent protection of intellectual property claims of software and pharmaceutical firms to all three countries. And NAFTA provides a private forum to entertain and adjudicate claims from private corporations that they should be compensated for government policy changes that harm their profits. So at the same time that NAFTA exposes workers in all three countries to fierce competition with each other in a common labor market, it provides greater protection for the incomes of owners and managers of multinational corporations. All in all, the rules of trade treaties are some of the most blatant rule-rigging that exists in economic policy.

The recent Canadian request is quite radical in that it takes as given that trade treaties are used all the time to leverage big changes in country’s domestic policies, but then demands that these changes actually benefit workers rather than corporate owners and managers.

And it’s a potential game-changer for the NAFTA renegotiation process. If the U.S. agreed to it, lives for tens of millions of American workers would get materially better. Will the Trump administration crow about the better deal they struck and accept this proposed change?

I’ll bet my house that they won’t. Despite their repeated claims to care about the plight of working-class Americans, some of the only substantial policy changes that the Trump administration has achieved so far have been a systematic attack on policies or regulations that give these workers any economic leverage or protection.

In short, Prime Minister Trudeau has called President Trump’s bluff. Trump has claimed he hates NAFTA because it’s bad for American workers. He has been handed a chance to effect a change in it that would actually benefit the entire American working-class. He will pass on this chance and this should tell us a lot about him and who he really cares about.


Reposted from EPI