Back in June, I did a post entitled “Is Neoliberalism Dead?” Today we have an answer:


The tentative trade agreement between the US and Mexico has some shockingly small changes to the Nafta agreement, on one of the most important sticking points:

According to people close to the talks, US and Mexican negotiators have at least reached a consensus on the treatment of Mexican car exports to the US, which has long been a subject of tension between the countries. The deal would involve tariff-free access to the US market for cars produced in Mexico as long as 75 per cent of their components were made in North America — compared to 62.5 per cent now.

The Trump administration had long insisted that level should be set at 85 per cent, in a bid to force production back to the US. A small tariff would apply to cars entering the US market from Mexico that do not meet those standards.

In the bilateral negotiations — spearheaded by Robert Lighthizer, the US trade representative, and Ildefonso Guajardo, the Mexican economy minister — other main sticking points have been the treatment of farm products and access to Mexico’s energy market.

(I believe the “small tariff” on autos is 2.5%)

A few comments.  The world has never had free trade in farm products, so it’s no surprise that this is a sticking point.  And Mexico’s energy industry has been completely closed since the 1930s, except a slight opening in recent years (which had nothing to do with Nafta.)  So any changes there are not likely to significantly roll back neoliberalism, and might even advance it.  The car industry was the area of biggest concern to the US government, and President Trump did succeed in achieving some limited objectives.  Of course economists would view this deal as a loss to the US, as it makes our economy less efficient.  But let’s suppose the mercantilists are right and it’s a net plus.  What is shocking is how little this proposed agreement actually changes anything.  The auto agreement is trivial, much like the recent preliminary agreement that Trump made with the EU.  Globalization will roll on, pretty much the same as before.

This means that much of what you have read over the past year is deeply misleading.  The press was full of pundits gravely announcing that the voters had rejected globalization, or neoliberalism, and were opting for nationalistic candidates.  Actually, polls show that voters like international trade, and that’s probably why the Trump administration has decided to only tinker with the system at the margins.  Voters don’t want to go to Walmart and find empty shelfs, or even goods costing twice as much as those made in China.  Many of the more nationalistic groups, such as the UKIP in Britain, were actually pro-trade.  Trump said he wasn’t against trade; he just wanted deals that are more favorable to the US.  What he didn’t understand is that the current deals are already quite favorable to the US.  He found this out after taking office, and thus learned that only minor tweaks are feasible.

Again, the pundits were wrong; there has not been a major backlash against globalization.  Even the radicals in Greece decided it was better to stay in the EU, austerity and all, than to go back to a more closed economy.

While the idea of a major backlash against globalization is myth, we can expect pundits to ignore the obvious and continue to double down on this false claim.

PS.  President Reagan’s tariffs on Japanese cars were far more protectionist than this proposed agreement, and I don’t recall anyone calling Reagan an opponent of globalization.

PPS.  This also caught my eye:

People close to the talks said that if the Democrats reclaim the House of Representatives, the path to congressional approval of any new Nafta deal would be especially perilous.

The Democrats claim to be horrified by Trump’s aggressive nationalism.  Let’s see if they back up their words with actions.