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Round four of the Nafta negotiations kicked off yesterday, but this time, negotiators are trading in their peace pipes for nunchucks. That’s because a few aggressive U.S. demands could prompt Mexico and Canada to walk away from the table: Proposing a “sunset” provision, which would terminate Nafta after five years unless the countries actively renew it. Introducing an “auto rules of origin” clause requiring Nafta-made cars to source over 50% of their content from the U.S. Gutting the “Investor State Dispute Settlement,” a system that allows private corporations to sue foreign governments. Weakening the ISDS would create more uncertainty for U.S. companies investing abroad…in let’s say…Mexico (h/t Axios). So what’s tying these proposals together? Trump wants to reduce trade imbalances with our neighbors (like a $64.3 billion deficit with Mexico) by “leveling the playing field” for U.S. manufacturers. But other groups, like the U.S. Chamber of Commerce, disagree. Its argument comes straight from an Econ101 PowerPoint: barriers lead to economic inefficiencies…and free trade is a tide that lifts all boats.
U.S. Trade Representative Robert Lighthizer is finishing up the third round of NAFTA negotiations alongside counterparts from Mexico and Canada. They’re talking cars. Right now, a law known as the “rules of origin” states that for a car produced in NAFTA countries, 62.5% of its total value must originate in those countries. BUT there aren’t any country-specific mandates. Expect the U.S., which feels like it’s getting stiffed in vehicle manufacturing, to demand a minimum level of U.S.-made parts.