Donald Trump campaigned for president on the premise that he would rip up US trade deals including the North America Free Trade Agreement with Mexico and Canada, which he has dubbed “the worst trade deal ever made.”
While he was quick to renege on the Trans-Pacific Partnership Agreement with 11 Pacific-Rim nations that President Barack Obama and US trade negotiators spent several years working out, Trump was more daunted by the long-standing NAFTA. Rather than pull out, as he had promised, Trump has decided to renegotiate its terms, although the details of such renegotiations had until recently remained unclear.
Now there’s some semblance of a plan on NAFTA and it includes a provision that has never been used in past US trade deals, and for good reason, according to Jeffrey Schott, senior fellow at the Peterson Institute for International Economics (where I used to work) and a veteran trade economist and former negotiator.
The Trump administration said last week it wants NAFTA revisions to include a so-called “sunset provision” that would terminate the pact after five years unless all three countries actively approve its renewal.
“Sunset clauses have never been included in US trade agreements for the simple reason that they undercut the basic economic benefits of the deal,” Schott writes in a new blog post.
“Such a clause would insert a fixed expiration date for NAFTA and require positive and politically fraught decisions to maintain tariff-free access to the three markets.”
The increased uncertainty over the future of regional trade relations, coupled with the threat of import restrictions, would “discourage investment and dampen growth prospects in all three countries,” Schott says. “The Trump administration’s sunset proposal is senseless — and unnecessary.”