Renaming NAFTA and not changing anything substantial is not a victory.

Written by Dan Murawski, Edited by Wyatt Mingji Lim.
Cover Photo from Getty Images

Being from Michigan and working in the finance department for one of the largest auto suppliers, I know a bit about how the industry works and I can tell you that there is a substantial amount of goods that are imported before they are put into a final component before it’s assembled in a plant. I can also tell you that UAW (United Automobile Workers) has a two-tier system that pays old workers in the ballpark of $35/hr and new employees right around $15. New employees are working with much more complex machinery that is much more productive. For instance, there is a plant about 1 mile from my house that now has less than a quarter of the workers that it did 30-40 years ago. Workers were once trained about 2 days, typically, now they train for multiple months to learn how the machines work.

I can also tell you that despite the rosy predictions for how the industry would adapt, white-collar jobs have been cut as a result of decreasing profits, prices on steel and changes to MPG standards all a result of Trump’s failure to understand basic economics:
https://www.cbsnews.com/news/gm-confirms-4000-involuntary-job-cuts-starting-this-week-2019-02-04/

GM confirms 4,000 white-collar job cuts starting this week

General Motors has confirmed to CBS News it started a major round of involuntary layoffs Monday that will cut about 4,000 white-collar jobs from its payrolls. The job reductions, part of GM’s previously announced plan to reduce its headcount by 15 percent, are coming after more than 2,000 employees accepted voluntary buyouts.

The net impact has been to cut 14,700 jobs in North America :
https://www.wmcactionnews5.com/2018/11/26/gm-slash-jobs-north-america/

https://www.wmcactionnews5.com/2018/11/26/gm-slash-jobs-north-america/

I can also point to the UAW strikes that resulted from the new power of the workers after this trade agreement :
https://www.usatoday.com/story/money/cars/2019/09/27/gm-strike-update-uaw-how-long-will-last/3784666002/

GM, UAW aren’t close – agreement might take another week of talks

The UAW and General Motors are far apart on several key issues that could take a week or more to resolve before a tentative agreement is reached, two people familiar with the talks told the Free Press on Thursday.

Has this changed anything for the maquiladoras? Not really. As it turns out, the companies can use credits for R&D and other types of spending. It seems like there are some losses on the US warehouses, but they are minor: https://www.autonews.com/commentary/usmca-opens-can-worms

USMCA opens a can of worms

Mexico’s Congress is already engaged in discussions and consultations on the labor law. Confrontations among union leaders, union members, industry associations and the government have surfaced. The spectrum of the discussion will be broad and full of land mines.

Do you need any more examples of how the USMCA and Trump’s reckless executive orders have hurt the auto industry and jobs?

Let’s move on to dairy, the second industry impacted on your list. As it turns out, my girlfriend is faculty at Michigan State University that puts on continuing education programs, does research and is a resource for local farmers. We live in Michigan and a two-hour drive to Canada. Her assigned counties include one of the 3 with bridges to Canada.

Canada has a system that caps the number of cows a farm can have. This keeps prices high and keeps producers from taking advantage of economies of scale like we are able to in the US. They restrict imports with a tiered system based on quantity entering the country. Politicians duped the public into believing that this system that scales up set tariffs to the maximum amount for all US dairy products. Not true.

Farmers are getting destroyed. They are getting paid about $18/hundred pounds. In my state, they’re closer to $16/cwt for high-quality milk.

This system allows them to keep prices high to protect their farmers. The US agreed to allow Canada a few years to prepare for the transition. No specified agreement exists for transitioning to a competitive market. This will allow Canadian farmers ample time to scale up, increase their number of cows which decreases the price of milk, and eventually restore a new equilibrium. The agricultural economists that my girlfriend works with the estimate that the net impact for farmers to be almost negligible for the price of milk after the transition period and after any extra cows are sold at discounted prices to US farmers.

This is in line with what the co-ops are predicting, based on my girlfriend’s many contacts, including our mutual friends that work there, in particular, our friend that works in marketing.

I’m much less familiar with the grievance process for trade violations.

It seems obvious that businesses make investments based on their expected return. Having additional volatility by giving Mexico and Canada the right to terminate our trade deal every 5 years is beyond idiotic, especially considering all of our manufacturing in Mexico.

Competitive devaluation is a tactic used by all industrialized countries. In the US we have done this through quantitative easing, interest rates, and our treasury. Either this point will be completely inconsequential, or we’ll have our hands tied.

Interest rates have increased three times under Trump. We’ve already had three cuts of equal value. We’re talking about going further. We have never had more jobs than candidates. The primary tool for economics stimulation is interest rate cuts. I know small businesses that can’t hire unskilled workers at prices that can keep them profitable. It’s unsustainable. Powell changed the target rate for interest without much notice or public debate. Why Trump thought it would be reasonable or logical to deficit spending through tax cuts (with a multiplier of less than one… meaning that for every dollar of tax cuts, the increase to the economy was less than one dollar) without an offsetting increase in interest rates is beyond me.

If we think of trade in a simple game-theoretic model, it seems most appropriate to use the prisoner’s dilemma model both sides are worse off without trade, both sides are better off with trade. Cheating leaves one side worse off, one better off.

When we approach trade with the idea that we want to “beggar thy neighbor”, that sets the stage for the next round. The most likely response is based on the previous move. The best response is a tit for tat approach as it protects against cheating and encourages an outcome towards liberalization and more products made.

I’m not sure what kind of background in economics you have, but I have in mind a simple Ricardian model that allows for firms/people to decide where their competitive advantages are and allow free trade. This increases the net amount of goods in both countries.

Trade Wars, Trade Negotiations and Applied Game Theory on JSTOR

Journal Information The Economic Journal was first published in 1891 with a view of promoting the advancement of economic knowledge. Today, The Economic Journal is among the foremost of the learned journals in economics.

The ironic thing is that we’d be a lot further with trade if we would have just gone ahead with TPP. It was an opportunity to reassess our terms. Instead, he wanted to go alone and he biffed it.