Today, Explained - Good news for Canadians who like milk

Episode Date: October 2, 2018

The United States, Mexico, and Canada have a new trade deal. It’s called USMCA, or “the new NAFTA.” Vox’s Jen Kirby breaks it down before political scientist Ian Bremmer determines who's really going to benefit. Learn more about your ad choices. Visit podcastchoices.com/adchoices

If you don't have enough time to read your books, you can at least give listening to them a shot over at Audible right now. You'll get a 30-day trial and your first audiobook for free at audible.com slash today explained, or when you text today explained all one word to 500500. It's my great honor to announce that we have successfully completed negotiations on a brand new deal to terminate and replace NAFTA. Jen Kirby, you report on international news for Vox, and there is big international news. There's a new NAFTA. Yeah, NAFTA 2.0 or USMCA. Rolls right off the tongue there.

You know it. So Trump's been talking smack about NAFTA since as far as I can remember, but it all seemed to come to a head this weekend. Why? Well, that's because the U.S. had a self-imposed deadline of September 30th. The short answer is that the U.S. really wanted to sign this agreement by the end of November because the president of Mexico, Enrique Peña Nieto, was leaving office and the new leftist president, Manuel Lopez Obrador, was taking over.

So the U.S. has this thing called Trade Promotion Authority, TPA, and part of the agreement is the administration gets to negotiate the trade deal and Congress has to approve it, but the administration has to let Congress know that a trade deal is coming. So they started that process off. And according to the timeline, they had to deliver the text by, or were supposed to deliver the text by September 30th. And Mexico and the United States had already figured their ish out, but the United States and Canada were still lingering, yeah?

Yeah. And so the U.S. had threatened to go ahead with a bilateral deal just between the U.S. and Mexico and leave Canada out. And pretty much nobody wanted this, particularly Congress. Both Republicans and Democrats were very uneasy about this. So the deadline might have helped push them to get the last-minute deal, which made everybody happy that it was a trilateral agreement. And Mexico, the U.S., and Canada were all on board. Okay. So I guess let's get into the headlines of this deal. What were like the major developments of USMCA? Well, there are a ton of them and everybody's still trying to figure out what's going to happen and how all these things are going to work in the real world. But some of the big

ones are definitely involving automobiles, probably the biggest change. Next, you have a bunch of labor protections. And then you have the U.S. had greater access to the dairy market. And then you have Chapter 19, which is a trade dispute mechanism that Canada really wanted. And then you have some intellectual property right protections. And there's a ton and ton of other ones, but those are kind of the big ones that people are talking about. Okay, yeah, let's start with these. So first off, auto industry trumps real into that. Yes, he loves his autos. My administration will work tirelessly to eliminate the industry killing regulations and to ensure a level playing field for all American companies and workers. The big one here is that there are these things called country of origins rules, which basically is raising the amount of parts that have to be manufactured in North America. So in Canada, Mexico, and the US,

and it's up to 75% of car parts have to be manufactured there. The idea is to keep manufacturing in the US and boost auto production here, but it may make cars a little bit more expensive. And is he boasting that that's a good thing? Oh, he is indeed. Once approved, this will be a new dawn for the American auto industry and for the American auto worker. They will see. They understand. So how exactly is he doing this? The minimum wage is going up in Mexico? There's another component of this going into effect by 2023. About 40 to 45 percent of component parts of the car have to be made by workers who are making $16 an hour. And that's basically what's standard in the U.S. and Canada. But Mexico, the minimum wage is very low. So the idea is that it would potentially be good for workers in Mexico

who will have to kind of perhaps have their wages increased if they're making these components of cars, or it will keep jobs in the U.S. and Canada as well because there will be less of an incentive to move south because you'll have to pay workers a certain amount of money in all three places. Part of the reason this deal was held up for a while was because of Canadian dairy? What was going on there? Oh, Canadian dairy. In Canada, our milk comes in bags. If you've listened to any Trump rally, this is one of his favorite talking points about

the unfair trade practices of Canadian dairy market. The United States pays tremendous tariffs on dairy, as an example, 270%. Nobody knows that. We pay nothing. We don't want to pay anything. Why should we pay? Basically, the long and short of it is the U.S. wanted greater access to the dairy market in Canada. They felt that this system in Canada was preventing their farmers from being able to export to Canada. So the U.S. won in the USMCA negotiations, greater access to the dairy market. So really, it's a good deal for certain dairy farmers in the U.S. It's not a huge opening. It's enough that Canada should be able to absorb it, as one expert told me. But

it's certainly a victory for Trump since he's been talking about it forever. And it's probably a victory for Canadian consumers who might have a little bit cheaper milk now. What were the other sticking points for Canada? So one of the big things Canada wanted was to preserve what's called Chapter 19. It's renumbered in the new agreement. But it's a dispute mechanism for trade. And basically, the reason that Canada wanted it is because it felt like it was a defense against any sort of U.S. protectionist trade policies. When your trading partner is 10 times your size,

you need rules. You need a level playing field. The idea was if there was an issue for certain types of disputes, it would go to an independent panel as opposed to the domestic courts. And Canada felt it would get a better deal that way. And this was a red line for Justin Trudeau. He said so. And the U.S. had wanted to get rid of it altogether. But eventually Trudeau prevailed and he pretty much got what he wanted, which was to keep Chapter 19 intact. And the last big thing for Canada was steel, right?

What ended up happening with the steel tariffs? Canada really objected to Trump's imposition of steel and aluminum tariffs. Under pretext of a 232 national security provision. Let me be clear. These tariffs are totally unacceptable. And they were hoping that through the NAFTA negotiations, the Trump administration would agree to ease off on those. They didn't end up coming away with that victory at all. But what they did get, and Mexico as well, is they did get some protections from auto tariffs, which Trump had also threatened,

which would be pretty devastating for Canada and Mexico. And so they got pretty substantial guarantees that should protect them from auto tariffs in the future. But the steel and aluminum tariffs remain in place for the time being. And then the one thing I'm reading about that I don't really understand is intellectual property. What's up between these three countries and intellectual property? Yeah, so the US basically made Canada go along with its intellectual property rights, which some critics think are a little too strict. But the copyright went from the life of the author plus 50 years to life of the author plus 70 years. So it's obviously a big increase. And then certain types of drugs called biologics went up to 10 years, which, you know, may prevent some generic

drugs from reaching the market. So it just made tighter intellectual property laws, which are kind of closer to what the U.S. wanted. So this has not been approved yet by any of the three countries? No. So Prime Minister Justin Trudeau, President Donald Trump, and Mexican President Enrique Peña Nieto have to get together and sign it. There's been some reports that they might do that at the G20 in November in Argentina. And then it goes to each of their legislative bodies who have to approve it. There may be some political hurdles, but for the most part, it seems that nobody really wants to destroy NAFTA. So the hope is that all three countries will approve it. But that probably won't happen until sometime in the next year.

So sometime in the next year, we'll actually stop saying NAFTA and we'll start saying USMCA. We'll see. It's going to be hard to break the habit of saying NAFTA, but Trump managed to muscle his way and get a USMCA deal. So maybe in time we'll all be starting to call it that. Coming up, is the new NAFTA good, is it great, or does it just perpetuate all the things people love and hate about free trade in the first place? This is Today Explained. For Bella Swan, there is one thing more important than life itself. Edward Cullen. But being in love with a vampire is even more dangerous than Bella could have ever imagined.

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Audible.com slash Today Explained or text Today Explained to 500-500. Ian Bremmer has feelings about USMCA. Well, I mean, I don't like the new name. It's hard to say. It's USMCA. USMCA. Well, I mean, I don't like the new name. It's hard to say. It's USMCA. USMCA. And that'll be the name, I guess, that 99% of the time we'll be hearing, USMCA. Has a good ring to it.

It starts with the United States, then it goes to Mexico, and then it goes to Canada. And while I wouldn't want the Canadians to think that that was personal, I suspect it is. But Ian's feelings aren't limited to the name of this deal. I mean, we needed to update. We needed to modernize this agreement. The world and the world economy has changed an awful lot since NAFTA was signed. I think we've helped to do that. This NYU political scientist thinks it's a good deal. The way he got there was not pretty. It was somewhat even abusive. And the state of actual personal relations between Trump and Trudeau is pretty poor. But I think that would have been the

case irrespective of the trade dispute. This deal is incrementally better in a host of different ways. And I think Trump deserves credit for it. He gave Trump credit on Twitter. He said, I'm hardly a Trump fan, but give credit where credit is due. New NAFTA USMCA deal is a win. People did not like his tweet. Because people think that Trump is so bad, or should I say people that don't like Trump, are so opposed to him, so viscerally, sort of every bone in their body, that it's important to not give him credit even for something that you would give credit to any other president for. Who do you think are the biggest winners from this new NAFTA deal?

That's hard to say. I suppose the biggest winner would be the markets, right? I mean, anyone that was concerned about the Canadian economy and particularly getting whacked if there hadn't been a NAFTA agreement. And if Trump had decided to play the six-month I'm pulling out of NAFTA card and then we would have had decided to play the six-month I'm pulling out of NAFTA card, and then we would have had lawsuits all over the place from all of the American states that have Canada as their leading trade partner, none of that happened. Instead, we have not only old NAFTA, but we have a marginally and incrementally better deal.

So the big win is the economy, and most importantly, the Canadian economy. Trump's a winner, and I think Trudeau's a bit of a winner, in the sense that he doesn't have to worry about his economy getting tanked by no NAFTA. And I want to stress, Canada got here because we kept our focus and our collective resolve. Even when some were recommending we capitulate. He was able to maintain this Chapter 19 of NAFTA, which is the dispute resolution mechanism that the Americans said they wanted gone. And that certainly helps Trudeau for Canadian lumber, for example.

And most of Trudeau's dairy supply management system does stay intact, which is also important on balance for Trudeau. And how are things for Mexico now? They made a lot of concessions to the United States. I mean, more than the Canadians did. And it's unclear if Mexican wages really are going to go up across the board, though AMLO personally, the new Mexican president who's coming in shortly, would like them to. But again, if there hadn't been a deal, this was going to be a huge problem. The Mexicans were all the way through more interested in getting to yes than the Canadians, because they were the ones

with the new administration coming in. They were the ones who felt like their economy, their currency was going to get rocked a lot more with the uncertainty of a problematic relationship with the US. What does Trump's negotiation of this new deal mean for the ongoing trade disputes we have with China? It certainly provides credibility for Trump, both that he is willing to mete out some punishment, he has a stick, but also that he's capable of getting a deal done. It also gets rid of a lot of outstanding conflicts. I mean, this was Trump a few months ago was looking like the guy that couldn't shoot straight on trade. He was blustering against his allies and his enemies equally, and they were all angry at him.

Now, he's got a fairly significant deal done. The Japanese are in a significantly better place. They're negotiating improving their bilateral trade ties formally. And the United States has decided not to pursue automotive tariffs while they're doing so. Same thing is true with the Europeans. That means they can really focus on China. So I think the Chinese are going to take him more seriously. And I think that, you know, there is a better chance for Trump that come the end of November, when he meets personally with Xi Jinping in Argentina at the G20, that the Chinese will come with something more significant that looks like a gift. Now, by the way, I would say that all of this would

have looked a lot better for Trump if the first thing he did on trade when he became president wasn't to unilaterally withdraw from the Trans-Pacific Partnership, which would have given the United States a lot more leverage, carrot and stick, vis-a-vis the Chinese. How did Trump's approach help or hurt him, the way he belittled Justin Trudeau? I mean, Canada really rallied behind Trudeau on trade in the past few months. Does the stuff matter, how he actually treats other leaders while in negotiations? It mattered in the sense that it made it take longer. But ultimately, it didn't matter as much. And the reason for that is because there's such an asymmetry between the American and the Canadian economy. I mean, Trump may be a bully, but he does occupy the bully pulpit. And if you're going to be a bully, you better have, you know, sort of some strength to back it up. Trump does. The OG NAFTA, the one Trump talked so much smack about, it was negotiated politely over the course of several presidential administrations, starting

with Ronald Reagan in the 80s. We live on a continent whose three countries possess the assets to make it the strongest, most prosperous and self-sufficient area on earth. And so a developing closeness among Canada, Mexico and the United States, a North American accord would permit achievement of that potential in each country beyond that which I believe any of us, strong as we are, could accomplish in the presence or the absence, I should say, of such cooperation. And this agreement will remove barriers to trade and investment across the two largest undefended borders of the globe and link the United States in a permanent partnership of growth with our first and third largest trading partners.

Leading into the 90s when it was signed by President Clinton. I believe we have made a decision now that will permit us to create an economic order in the world that will promote more growth, more equality, better preservation of the environment, and a greater possibility of world peace. Listening to Trump, you'd think NAFTA was either a really bad deal or maybe more generously, like, woefully outdated. Was it either of those things? No, it wasn't a bad deal. And I wouldn't say it was woefully outdated.

And Trump's penchant for exaggeration is by far the greatest that we've ever encountered in an American president. I have long contended that NAFTA was perhaps the worst trade deal ever made. I thought that was the Iran deal. I can't keep track of which deal is worse. The Iran deal was one of the worst and most one-sided transactions the United States has ever entered into. But irrespective of which one really occupies number one or number two, the exaggeration is extraordinary in both cases. And in the same way, Trump surely is going to exaggerate just how extraordinary this new NAFTA actually is.

Is the fact that NAFTA was this terrible deal in the president's eyes and then he just sort of slightly updated it and renegotiated it a sign that NAFTA wasn't such a bad deal to begin with? Of course, it wasn't such a bad deal to begin with. Nobody wanted it to go away. There was a lot of bluster. And that's kind of what you get. That's kind of how he won. A lot of people wanted that. And what was it about this deal that made it impossible to just implode? Because the economies are so integrated with each other. I mean, the number of American states and multinational corporations and farmers and automakers and the rest that have very significant long-term equities in keeping this deal intact, that unwinding it was going to be incredibly costly for an awful lot of people on all sides. It was going to hurt the economy. Look, it's certainly

true that the creation of NAFTA meant that some Americans lost their jobs, right? I mean, jobs definitely went to Mexico that otherwise would have stayed in the United States. And the American politicians didn't do very much for a lot of the people that lost their jobs, which is why we have so much, one of the reasons we have so much polarization in American society today. But that doesn't mean the deal was bad. The deal led to much more economic growth. Free trade is objectively a good thing, but it's not good for all people. The government needs to then look at who the losers are and needs to take some of that cash and redistribute it. You have to do that, right?

Because otherwise these people get screwed. And that's basically what the story of NAFTA and so much of free trade has been over the past four decades. And is this new deal going to do anything to bring those jobs back or redistribute any wealth that came from these free trade agreements to people who were affected by the original NAFTA? The answer to that is yes, a little, but let's keep in mind that the bigger displacements for jobs in America today overwhelmingly is automation. It's AI. It's machine learning. It's robotics. It's not free trade. And so, I mean, even if a lot more capital ends up coming back in the United States for manufacturing, I don't think it'll be a lot. I think it'll be a little. I'm not sure that that's

going to come with a lot of jobs. So there still is this question of what the Americans are going to invest in long term. And, you know, Trump has shown that he's willing to engage in big deficit spending. But it hasn't been an education. It certainly hasn't been an infrastructure. to see not just short-term giveaways in tax, which everyone has benefited from. You could say the wealthy have more than the poor, but everyone's benefited. But that's not going to do much in 10 years and 20 years time for these people that don't have the training to find new opportunities when the old ones have dried up. And that is a question that has bedeviled the United States. For some time, Obama was no more able to resolve it than Trump has been so far. Ian Bremmer is the host of the TV show GZERO World, and he's the president and founder of the Eurasia Group. It's a political consulting firm. I'm Sean Ramos for him. This is Today Explained. It's a podcast. Audible has the largest selection of audiobooks on the planet, and right now Audible members get even more.

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