Mexico Bites Back
By INVESTOR'S BUSINESS DAILY
Free Trade: Congressional Democrats have a bad habit of viewing treaty obligations as favors, forgetting that trade is a two-way street. Now that they've broken NAFTA, the Mexicans are about to educate them.
Responding to Congress' scrapping of a North American Free Trade Agreement obligation to let Mexican trucks enter the U.S., Mexico's government retaliated with $2.4 billion in tariffs on 89 U.S. goods that had gone to Mexico duty-free since 1994.
The Mexicans made no bones about why they were doing it: If the U.S. won't honor the treaty it signed in 1993, then they won't either.
Retaliation isn't something to cheer, but who didn't see it coming?
The U.S. had promised to let Mexican trucks on the road by 2000, and still only had a pilot program as of 2003. When the U.S. Omnibus bill got rid of even that program, under which Mexican trucks passed all inspections and even outperformed U.S. trucks on safety, the result was a treaty not worth the paper it was printed on.
With retaliation, the Mexicans were saying that if the U.S. intended to pick and choose what parts of the treaty it would follow, then they'd do the same. It's a terrible bargain, because this is becoming a trade war with sides about to lose out.
This is a function of a protectionist climate in Congress, a lack of leadership in the White House and an open store for special interests, in this case, the Teamsters, who see Mexican trucks as a threat.
The Mexicans knew this was coming, too. They were ready. As a Mexican official told the Oregonian newspaper on Wednesday, Mexico targeted goods produced in districts represented by Congress' worst trade protectionists for tariffs.
"The intention is to let the constituents know that it's important that the United States respects and abides by its international obligations," the anonymous Mexican official explained.
To the Mexicans, the U.S. hypocrites got the biggest "teaching moments." After all, those who expect to sell goods to Mexico but refuse to permit Mexicans to do the same apparently needed a lesson on the meaning of two-way treaties.
House Speaker Nancy Pelosi, whose district is near California's vast table-grape producers, got the highest tariff hikes, as much as 45%. It was, after all, the House Leader who's taken Congress in its protectionist direction.
It ought to be a lesson to all of them, however. President Obama, during his campaign, vowed to rewrite NAFTA to make it "fairer" for the U.S. He backtracked when the enormity of what he was proposing became clear, yet vowed to dictate changes anyway.
The net result has been retaliation, and the dangerous prospect of the unraveling of NAFTA — and the loss of a lot of very lucrative markets. What no one really expected was that breaking a treaty obligation would trigger such a free-for-all. Congressional Democrats have no one to blame but themselves.
Free trade and treaty obligations aren't favors to be bestowed to special interests, but a two-way street, a deal, a bargain. Follow treaty obligations and see treaty obligations enforced on the other side in return. Renege, and forget about compliance on the other end.
Trade is all about trade-offs, not favors bestowed at a king's whim. Unfortunately, that's how Democrats apparently see it.
The impact of the truck decision is amazingly high. Mexico is our third-largest trade partner, with $370 billion in two-way annual trade. In exchange for taking Mexican trucks off our roads, American companies will now have to pay $2.4 billion in Mexican tariffs.
It will cost 40,000 U.S. jobs at a time when the economy can ill afford it. It will also raise costs as trucks exchange goods to new trucks near the border. It also lifts the potential for crime and supply-chain risk. That's something, considering that the average number of trucks affected by the U.S. pilot program to permit the Mexican trucks beyond a small border zone was . . . three.
The sad thing is that adhering to NAFTA would have prevented this cost. Congress may think Mexico is a pushover compared to the votes and campaign cash of the Teamsters, but the reality is, it has its own tools that can be used to affect the economic well-being of any district that trades.
We wish our protectionists in Congress were wiser. It appears they're going to learn about protectionism's perils the hard way.
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