Your Reading List

Better signs for NAFTA

Free Market Reflections with Steve Dittmer

Closeup of the flags of the North American Free Trade Agreement NAFTA members on textile texture. NAFTA is the world's largest trade bloc and the member countries are Canada, United States and Mexico. 3D rendering with detailed textured grunge effect on closeup.

In early January some hope for a new and improved NAFTA agreement was buried in the political and media bombast in Washington, D.C. At first glance, the release of the book, Fire and Fury: Inside the Trump White House, had little to do with trade and NAFTA. We were fooled, however, because we knew only some things about Steve Bannon but hadn’t really studied the man.

Bannon, a former naval officer, investment banker, political operative and important driving force in conservative/populist media site, in the words of national economics and politics radio commentator Larry Kudlow, chose the book with which to commit “political suicide.” Bannon had served as campaign director, counselor to the president and White House chief strategist. He had claimed to understand and represent the conservative and populist voters disgusted with Democrats and established Republicans. Both Democrats and Republicans tended to exaggerate his power and influence in the campaign and the White House, for opposing reasons. Bannon did not humbly correct either.

While Bannon was fired from the administration in August of 2017, many believed he still unofficially had President Trump’s ear. That is until the book came out and Trump was forced to thoroughly repudiate Bannon. Both David French, veteran writer and political observer for National Review and Ed Klein, author and avid chronicler of the Clintons, agreed cutting ties with Bannon was the best thing the President could do.

Bannon savaged Trump’s family in the book, a sure way to get Trump’s everlasting enmity.

Why is all this relevant to us? Because much of the punch behind President Trump’s protectionist tendencies came from two people: Bannon and economist Robert Navarro, currently White House director of trade and industrial policy. I’ve mentioned Navarro before. When a columnist recently asked Navarro to name another economist with his drastic protectionist views, neither Navarro nor the columnist could find one.

While we’ve had a hard time reconciling Trump’s great supply side instincts on growth — cutting tax rates and regulations to boost the economy — with his protectionist and anti-growth trade positions, Bannon’s positions were even more puzzling. While he professed to want to help the middle class, he favoured higher taxes and more and higher tariffs, which would hurt the very people he professed he wanted to help. These disparate positions were well known in Washington political circles and on Wall Street. Klein said Bannon’s departure was read by many as a return to more rational policies.

Which is why Kudlow credited Bannon’s demise to a large degree with the 577 point rise in the Dow the week of the book’s leaking and publication. While Kudlow has known Bannon for years and liked him personally, he admits he had lots of friendly disagreements with Bannon over his economic and “fierce” trade protectionist views. He said Bannon was okay with exports — he just didn’t want to import anything. He was actually in favour of the Border Adjustment Tax.

Kudlow, by the way, along with free market and pointedly free trade economists Stephen Moore and President Reagan’s economic advisor Art Laffer, were the three chief architects of Trump’s campaign tax reform plan. Kudlow was repeatedly consulted by the administration and congressional leaders during the legislative efforts to pass the bill.

So President Trump’s most influential proponent of trade protectionism is no longer in the White House. Other pressure on Trump continues to ratchet up. Senate Finance Committee members expressed their displeasure with the administration’s lack of direction and progress on trade to U.S. Trade Representative Robert Lighthizer. They also complained that the administration is not listening to Congress nor updating them on NAFTA negotiations, a legal requirement.

Sen. John Cornyn (R.-Tx.), the number two Republican, from a huge agricultural state, pointed out that NAFTA is a treaty and a renegotiated treaty will need to be ratified by Congress, a key fact the administration seems to be ignoring, (“GOP Frustration Rises with Trump on Trade,” The Hill, 12/26/17). The leadership is worried that “altering trade relations with Canada and Mexico too drastically could rattle the economy and wipe out the stimulative punch of the tax-cut package.”

They are also peeved that the promised quickly negotiated list of bilateral trade deals to replace the TPP and NAFTA has not materialized.

Agriculture is not alone in its interdependence among the three countries. A recent editorial in the Wall Street Journal notes the U.S. consumes about six million more barrels of crude oil and related products per day than it produces. Canada and Mexico need the U.S. to buy their excess crude: about three million barrels per day from Canada and 688,000 from Mexico. Canada needs American refineries that specialize in processing its heavy crude, as Mexico needs American refinery capacity (“Free Trade Has Been a Boon for Energy Independence,” 1/2/18).

Trump told the American Farm Bureau convention: “We need to export more renewable resources to other countries.” I hope that attitude is reflected in the January NAFTA talks in Montreal.

About the author


Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]



Stories from our other publications