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After 25 Years It Was Time To Rebalance NAFTA, Navarro Says


On a televised phone call with Mexico's leader, President Trump said he's planning changes to the North American Free Trade Agreement.


PRESIDENT DONALD TRUMP: We're going to call it the United States-Mexico Trade Agreement. We'll get rid of the name NAFTA. It has a bad connotation because the United States was hurt very badly by NAFTA for many years. And now it's a really good deal for both countries.

INSKEEP: The administration promises to send language to Congress by Friday to ratify or not. The fundamental structure of NAFTA would stay the same, lots of trade without tariffs or taxes across borders. But the agreement with Mexico would encourage a somewhat higher percentage of auto components to be made in North America. And it would encourage higher wages in Mexico, which would reduce pressure to cut wages in the United States. Some intellectual property and other rules would change, too. There does remain the rather large detail of whether Canada would join in. Presidential trade adviser Peter Navarro is on the line once again.

Good morning.

PETER NAVARRO: Good morning, Steve. How are you?

INSKEEP: I'm OK. Thanks very much. What led you to agree on, essentially, tweaks to the NAFTA structure rather than wholesale change here?

NAVARRO: Oh, I would strongly disagree with the idea that this is just a tweak. The concept here is to both modernize the agreement and rebalance it. This is a 25-year-old agreement. So it needed things like protections for digital trade, e-commerce, things like that. So that's in there. For me, Steve, the guts of this really is the rules of origin requirements, which go up to 75 percent. That means for domestic content and things like autos but other industries as well, as well as the labor provisions. And the vision is...


NAVARRO: ...To make North America, jointly shared with Mexico and the United States, a manufacturing powerhouse - to regain, essentially, things like the supply chain for the automobile industry, which has gone offshore. So Mexico saw this as a great opportunity as well because both countries would become essentially assembly operations for foreign components for autos.

INSKEEP: Yeah. Well, let's make it...

NAVARRO: So this changes everything.

INSKEEP: ...Clear what's going on when you talk about the components. I mean, 60 some percent of a car was supposed to be made within North America to be tariff-free. Now it goes up to 75 percent. That is a change. But just so that we're understanding...

NAVARRO: A big change.

INSKEEP: ...What this means...


INSKEEP: ...Is that it's a little harder to put parts from China in a car. You can still make parts in Mexico and put them in a car and sell it in the United States without tariffs. Right?

NAVARRO: Correct. But the concept here - remember, the other part of this is the strong protection for labor not just in terms of the rules for labor in the workplace but also the wages. Forty-five percent of the content has to pay $16 an hour. And so what's going to happen is both Mexico and the United States are going to share very well in reestablishing the automobile supply chain. I'll give you just an idea for your listeners so they understand. When a Ford, for example, is made in the United States now, half of the content, basically, is foreign. So we have - in South Carolina, for example, we make - we assemble BMWs. But the engines and transmissions...


NAVARRO: ...And 75 percent of the content is made offshore. So the point...

INSKEEP: Cars are made around the world. Right.

NAVARRO: Cars are made around the world and not because of strict economics - a lot of the times, the cars are made around the world because of the high tariffs in Europe versus here. For example, the tariff on cars is four times higher in Europe. So the point here, Steve, is with this agreement, the whole concept of it is to regain the manufacturing base and supply chain, the high wages. And that'll help...

INSKEEP: Let me just jump in here for a second here to mention...

NAVARRO: ...Not only to rebuild our middle class but Mexico's as well. Sure.

INSKEEP: Right. OK. Yeah. There's some higher wages in Mexico as well. That's correct.

We talked elsewhere in the program today with Tim Ryan. He's a Democratic congressman from Ohio. He likes this. He likes what he's hearing. He says this is welcome. But he notes that Canada is not yet in. And his state, Ohio, actually does more business with Canada. Ryan points out that Canada is a more compatible trading partner with the United States - better labor rules, better environmental rules. Wouldn't you rather get them in?

NAVARRO: Today Ambassador Robert Lighthizer is scheduled to meet with his counterpart Chrystia Freeland of Canada to get them in. Sure, we'd love to have them in. The reality of the negotiation, which went on for a year, was that we were able to get to the finish line with Mexico first. And Mexico and the U.S. were highly motivated. We have a $70 billion annual trade deficit with Mexico, and a lot of our jobs were being offshored to Mexico. So it's very important to make that deal. Mexico was motivated because they were interested in regaining their supply chain as well. So we're engaging immediately with Canada. We'd love to have them in. Let's see what happens.

INSKEEP: OK. Just very briefly so that I understand the mechanics of this - if you just send a U.S.-Mexico deal to Congress and ask them to sign off on that and they do, does that mean free trade with Canada is dead? Or does the old NAFTA remain in place, and you've just got this additional agreement?

NAVARRO: What will happen probably is that the old NAFTA will be terminated. We'll have a bilateral deal with Mexico, and then we'll renegotiate the rules with Canada. But let's not go there yet. We're going to engage fully with Canada this week, and let's see what happens. But this is a good deal for America. You talking of Ryan was good because he's a Democrat. I think this is going to have broad bipartisan support. It's an American deal. It's not a Republican deal or a Democratic deal. It's an American deal. It's good for the hemisphere.

INSKEEP: Mr. Navarro, it's a pleasure talking with you again. Thanks very much.

NAVARRO: Take care, Steve. Bye.

INSKEEP: Peter Navarro is a White House trade adviser. NPR's Scott Horsley covers the White House, also covers economics - has for many years. And he's been listening along with us.

Hey there, Scott.

SCOTT HORSLEY, BYLINE: Good to be with you, Steve.

INSKEEP: What did you hear there?

HORSLEY: Well, it is interesting that the White House is hoping to attract Democratic votes for this trade pact. But they run the risk of alienating some of the president's fellow Republicans - a lot of skepticism from Republicans in Congress about some of the provisions that Ambassador Lighthizer has negotiated here and certainly skepticism about the idea of leaving Canada out. Most of the responses yesterday - most of the lawmakers yesterday said they definitely want to see Canada incorporated in this deal. And in fact, that may be legally necessary under the fast-track agreement they've got with the White House.

INSKEEP: Very briefly - is there a risk of unintended consequences with an agreement like this - you get a deal that seems better for the United States, but you just create more friction and trade and maybe make the U.S. poorer?

HORSLEY: One thing to keep in mind is that the existing tariffs on imported cars in the U.S. is pretty low. So if this drives up the cost of North American vehicles, you could just see more foreign imports.

INSKEEP: Scott, thanks very much.

HORSLEY: Good to be with you, Steve.

INSKEEP: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.