For many years, North Atlantic Treaty Organization (NATO) member Canada was among the United States’ closest economic partners. But major tensions between the U.S. and Canada have emerged during President Donald Trump’s second term. And liberal economist Paul Krugman, in his Substack column, argues that Trump is doing everything he can to undermine the traditional North American economic alliance: the U.S., Canada and Mexico.
“In what would be major news except for all the other disasters happening,” Krugman laments, “Donald Trump has declined to renew the USMCA — the successor to the North American Free Trade Agreement — which he himself negotiated. This puts businesses on notice that tariff-free shipments within North America, which NAFTA supposedly made permanent, may go away. Some commentators have dismissed this as no big deal, because Trump’s successor will probably reverse his decision and make the USMCA permanent after all. However, this misses the point of such agreements.”
Krugman adds, “Before NAFTA went into effect, North American tariffs were already low. The average tariff imposed by the U.S. on imports from Mexico was only 2 percent. But NAFTA gave more than tariff relief. It gave, or seemed to give, certainty: businesses could invest in border-spanning supply chains confident that they would be able to use these chains for many years to come.”
Krugman makes his points by highlighting comments he made during a recent appearance on Bloomberg Television, where he was interviewed by “Bloomberg Wall Street Week” host David Westin.
The economist and former New York Times columnist emphasized that the North American countries, for decades, enjoyed a close economic alliance. But under Trump, Krugman warned, that mutually beneficial alliance is suffering.
Krugman told Westin, “The great virtue of this whole world’s trade system that the United States basically set up after World War 2 was that it provided, it wasn’t just that their tariffs were low, though that’s important. But even more important, things were predictable. I would almost prefer that Trump put on more tariffs on Canada and Mexico, but committed to keep them in place, than have rolling negotiations where every year you don’t know what next year will be like.”
Krugman argued that extreme protectionism is harmful, not helpful, to the U.S. economy. And he called for a “free movement of goods” between the U.S., Canada and Mexico and a European Union-like arrangement between the North American countries.
The economist told Westin, “The idea that somehow, turning our back on the world here is going to add jobs is probably wrong…. There is no trade conflict here except in Trump’s mind…. We shouldn’t be worried about being dependent on Canadian aluminum.”
Krugman did say, however, that some “conditional tariffs on Chinese cars” are “probably going to be necessary.”
Krugman told Westin, “We have a real problem with China. The problem with Mexico and Canada is just a figment of the president’s imagination.”
– YouTube www.youtube.com