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Trump SOTU Trade Message: An Advance Fact-Check

Donald Trump is likely to misrepresent the facts and inflate his record on trade as he hits the midpoint of his presidential term and delivers his second State of the Union address. We offer this handy guide to help sort fiction from fact. While the administration’s trade reform effort includes some key steps in the right direction, it remains a work in progress with uncertain outcomes.

 

Past Trump Mischaracterization

Reality

 

UNFAIR TRADE: President Trump says he has “turned the page on decades of unfair trade deals.”

(a claim made in last year’s address)

 

Transformation of U.S. trade policy remains a work in progress, with uncertain outcomes. The signing of the North American Free Trade Agreement (NAFTA) 2.0 text on November 30 was the first step in a long process, and further improvements are necessary for a final package to pass Congress much less for revisions to stop NAFTA’s ongoing damage to workers and the environment. Only very limited revisions were made to the U.S.-Korea Free Trade Agreement. There is still a danger that the ongoing trade battle with China could end in one-time purchases of U.S. exports that would do nothing to address China’s underlying unfair trade practices and deliver the necessary structural changes to alter long-term trends. Contrary to his promises to do something about trade imbalances, the trade deficit is up 13 percent under Trump. By the time Trump announced he would formally shelve the Trans-Pacific Partnership (TPP) agreement, it was a moldering corpse that could never muster a majority in Congress, meaning his role was in the pact’s burial, not in authoring its demise.

 

 

TRADE DEFICIT: Trump says that U.S. trade relationships are more “balanced” and “reciprocal,” but he has yet to fulfill his campaign promise to bring down the trade deficit: “We have a massive trade deficit with China, a deficit we have to find a way quickly, and I mean quickly, to balance.”

 

On the one clear measure that Trump set for himself as a benchmark for success – bringing down the U.S. trade deficit – he is failing – with the largest China deficit ever recorded and a 13 percent increase in the U.S. trade deficit with the world during the Trump administration. As our Trump trade deficit tracker shows, the U.S. trade deficit has grown significantly under Trump. The latest quarterly government data (released in November – the 2018 annual data is a shutdown victim and a new release date has not been announced) reveals the highest U.S. goods trade deficit in a decade for the first three-quarters of 2018, up 13 percent since the start of the Trump administration. During Trump’s presidency, the U.S. trade deficit with China has risen (also 13 percent) to the highest ever recorded, while the deficits with the world and with NAFTA nations specifically have steadily grown.

 

 

USMCA V. NAFTA: Despite an effort to rebrand NAFTA with a new name, Trump’s renegotiation has not fixed the problems of original NAFTA.  

 

Trump’s claim to have created a totally different kind of agreement is a deceitful sales pitch, similar to those used for decades by US presidents to hawk previous trade deals. After a year of renegotiations, the NAFTA 2.0 text signed on November 30 revealed improvements for which progressives have long campaigned, the addition of damaging terms that we oppose, and critical unfinished business. Unless the administration works with congressional Democrats on critical changes to the signed agreement, the pact is unlikely to be passed. One way in which NAFTA 2.0 is dramatically worse than the original is the addition of a slew of new monopoly rights for pharmaceutical companies that would help them avoid competition from generic products and keep medicine prices high. While the NAFTA 2.0 labor provisions are an improvement over previous U.S. trade agreements, unless strong labor and environmental standards are subject to swift and certain enforcement—which is not the case with the NAFTA 2.0 text—U.S. firms will continue to outsource jobs, pay Mexican workers poverty wages, and dump toxins in Mexico.

 

 

JOB OUTSOURCING: Trump says he has slowed outsourcing and is succeeding on “Buy America, Hire American,” but the data do not support this claim. 

 

Outsourcing of American jobs has continued and not only the high-profile GM and Carrier mass job losses while Trump’s corporate tax policies create incentives for more outsourcing and his promised Buy American reforms lag. GM’s factory closures at the end of 2018 spotlights the ongoing loss of American manufacturing jobs. One of the first companies that Trump met with once taking office, GM closed five plants affecting thousands of workers after expanding production in Mexico. Because of the outsourcing incentives in trade agreements like NAFTA as well as the pro-outsourcing tax bill signed by President Trump, firms will continue to outsource jobs. Even tax dollars that could be used to boost U.S. production continue to be offshored. A government-wide assessment on procurement spending President Trump requested never saw the light of day. Various new “Buy American” executive orders include recommendations but not requirements to expand the policy, making Trump’s “Buy American, Hire American” promises mainly rhetoric without policy action. Case in point: the NAFTA 2.0 text maintains the old NAFTA rules that require the waiver of Buy American procurement preferences with respect to Mexico.

 

 

CHINA TRADE: Trump may tout his actions to try to address China’s unfair trade practices, but whether he stays on track, adds the missing elements of a China trade plan and delivers remains to be seen.

 

 

Six months after the first set of U.S. tariffs on China, bilateral discussions have yielded little concrete progress. Meanwhile, Trump has failed to take action against trade advantages gained through misaligned currency values nor limit investment by Chinese-government-related entities in the United States. Though one of Trump’s campaign promises was to declare China a currency manipulator on Day One, four semi-annual reports by Trump’s Treasury Department have failed to name any country a currency manipulator. Trump has chosen to rely on criteria created by the previous administration that ensure no action is taken.

 

 

USMCA PAYS FOR BORDER WALL - NOT: Though Trump may claim the opposite, NAFTA 2.0 will NOT pay for the border wall between the United States and Mexico.

 

There are no provisions in NAFTA 2.0 that would directly or indirectly fund the border by putting money into the U.S. Treasury from the Mexican government. When trade generates money for a government’s treasury, it is via payment of border taxes, called tariffs. But even if NAFTA 2.0 raised tariffs, which it does not, that money would not go into a Trump-wall-fund. So, the same issue that caused the showdown would remain: Congress must allocate general revenue to the wall. But there is no such tariff revenue to be had. U.S.-Mexico trade has been duty-free under NAFTA for more than a decade. When NAFTA went into effect in 1994, Mexico agreed to duty-free treatment of everything with a 15-year phase-in. The revised deal does not add new tariffs. Moreover, perhaps the strongest evidence that nothing in NAFTA 2.0 forces Mexico to pay for Trump’s border wall is that Mexico, which has made clear it will not pay, signed the deal.

 

 

NAFTA 2.0 FATE IN CONGRESS: Trump says that NAFTA 2.0 can pass easily, but that is not what the vote count suggests.

 

Thanks to the midterm elections, only a revised NAFTA deal that can win significant Democratic support will get through Congress. Democrats in Congress are insisting that NAFTA 2.0’s  giveaways to Big Pharma are eliminated. And also that tougher labor and environmental standards are added, because the deal Trump signed  won’t stop corporations from outsourcing American jobs. Trump’s deal is not the transformational replacement of corporate-rigged NAFTA that Americans need. But if the administration works with congressional Democrats on needed improvements, there is a path to passing the revised NAFTA with a broad bipartisan vote.

 

NAFTA WITHDRAWAL: Trump says he could just withdraw from NAFTA if Congress doesn’t act on the renegotiated deal.

 

 

While Trump has the authority to withdraw, neither withdrawing from NAFTA nor maintaining NAFTA 1.0 will raise wages in Mexico (where average annual Mexican wages are down 2 percent with Mexican manufacturing wages now 40 percent lower than in China) that will stop the offshoring that transforms middle-class jobs into sweatshop jobs, or reverse NAFTA’s destruction of nearly a million American middle class jobs.

 

 

MEXICO V. U.S. IN NAFTA: Trump says the United States was a victim of the original NAFTA.

 

Trump’s notion of NAFTA as a plot by Mexico to hurt U.S. workers is absurd. NAFTA was the brainchild of U.S. presidents, was negotiated with input from hundreds of U.S. corporate trade advisors, and has been devastating to working people in both Mexico and the United States alike. Since NAFTA was signed, U.S. real wages are flat and real wages have actually declined in Mexico.

 

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