On Tuesday, the Trump Administration released its list of objectives for renegotiation of the North American Free Trade Agreement.
In the section on government procurement, the 20-page document included priorities such as “increasing opportunities for U.S. firms to sell U.S. products and services in to the NAFTA countries,” “keep in place domestic preferential purchasing programs,” and “maintain broad exceptions for government procurement regarding … national security.”
All these goals are possible, but one—increasing opportunities for U.S. firms to sell in Mexico and Canada—has been largely achieved under NAFTA as it is.
Negotiations on the other two will need to be carried out with extreme caution, as policies in these areas involve substantial trade-offs in terms of costs and benefits among various sectors of the U.S. economy.
New restrictions might help selected U.S. firms, but would sacrifice the jobs of other Americans and their ability to compete, while imposing substantial costs on U.S. consumers and taxpayers.
The original goal of NAFTA was to eliminate tariff and non-tariff barriers between the U.S., Mexico, and Canada. That’s been a boon for the economies of all three countries.
Modernizing the agreement in ways that maximize future benefits while minimizing new costs throughout the U.S. economy is the goal for which the Trump administration should strive.
Here is how the Trump administration should proceed with the three aforementioned priorities:
1. Increasing opportunities for U.S. firms to sell U.S. products and services into the NAFTA countries.
Reciprocal treatment is the strategy most likely to achieve good results here. The Trump administration will need to be willing to allow additional access to NAFTA partners in our own government procurement, not simply look to only gain access.
Less than 10 percent of the top 100 contractors for the federal government are foreign-owned companies. Of that amount, only one company was headquartered in Canada or Mexico.
U.S. exporters would win from greater access to government contracts in Mexico and Canada, and U.S. taxpayers will win if greater competition for U.S. government contracts lowers costs here.
2. Keep in place domestic preferential purchasing programs.
Like broader procurement restrictions, programs that impose domestic content restrictions on products procured by federal, state, and local governments result in higher costs for American taxpayers.
The best outcomes for America would result from their elimination, but in the context of NAFTA renegotiation, the Trump administration should at least offer reciprocal restraints in the use of such programs.
That would spur job creation across the country, contribute substantially to U.S. gross domestic product, and lower prices for government projects.
3. Maintain broad exceptions for government procurement.
The use of broad unilateral trade actions, such as Section 201 and 232, result in increased costs for U.S. producers and industries, and have severe negative impact on jobs in downstream industries.
Especially in the case of commodities like steel, safeguard, and national security-based tariffs are not proper mechanisms for addressing alleged unfair trade practices. Additionally, imposing such tariffs on America’s closest trading partners and allies is counterproductive to the burden-sharing goals of our defense alliances.
According to Bryan Riley, senior policy analyst at The Heritage Foundation, “U.S. trade agreements should be designed to increase economic freedom, not government control.” This principle should also apply to government procurement provisions in NAFTA, as increased prices for procurement result in unwise spending of taxpayer dollars.
In renegotiating NAFTA, the Trump administration should focus on opening markets and increasing competition, not closing them off.