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This week in Trumponomics: Trump notches a win

Rick Newman
Senior Columnist

President Trump won a victory on trade this week—and it didn’t involve China.

The “phase one trade deal” with China is a modestly positive development that will spare US consumers any further tariffs on imported Chinese goods. China may buy more US farm products. Financial markets might gyrate less on trade worries, as Trump backs off from tariffs while trying to get reelected. But most of the issues with China remain unresolved.

Less appreciated, and more important, is the pending approval of Trump’s trade deal with Mexico and Canada. The new USMCA will replace the North American Free Trade Agreement, which went into effect in 1994. Trump’s trade team finalized the deal last year, sending it to Congress for ratification. House Democrats asked for changes that were finally worked into the deal this week. The only steps left now are procedural, with the full Congress likely to ratify the USMCA early in 2020.

The USMCA isn’t a massive rewrite of NAFTA, but a tinkering accompanied by an aggressive rebranding campaign. U.S. farmers will get modestly better access to the Mexican market under the USMCA. There are new provisions governing digital trade, which didn’t exist in NAFTA. There are also provisions that could allow all three countries to band together against China in future trade disputes, rather than going it alone, as the United States is doing now in its trade battle with China.

For these reasons, this week’s Trump-o-meter reads MEDIOCRE, our third-highest rating.

Source: Yahoo Finance

The best thing about the USMCA is that it’s far better than no trade deal at all. Trump had threatened to withdraw from NAFTA if he didn’t get the new deal, a prospect that terrified many CEOs and trade experts, since that would have meant new tariffs among three huge trading partners, higher costs for everybody, and a possible recession. So investors are relieved Trump didn’t push the self-destruct button.

Still, the Trump-o-meter does not give Trump credit for putting out fires he lit himself. That’s why this week’s rating isn’t higher.

Oxford Economics predicts the USMCA will have a “negligible” impact on economic growth, citing a government estimate that it would boost GDP by a scant 0.35% per year. Some of the changes in the deal are controversial. New rules on wages and parts sourcing in the three-nation bloc could put upward pressure on labor costs, which would be good for workers, especially in the auto industry. But that would also raise costs, and when something costs more, consumers typically buy less of it.

Still, Oxford Economics pointed out that GDP could fall by at least 0.5% if Trump dissolved NAFTA, with nothing in its place. Even a bad trade deal would be better than that.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available. Click here to get Rick’s stories by email.

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