Let us assume, for example, that Japan sells bicycles for $50, that Mexico sells them for $60, and that they both expect a $20 dollar in the United States. If tariffs on Mexican products are removed, U.S. consumers will transfer their purchases of Japanese bicycles to Mexican bicycles. The result is that Americans will buy from a more expensive source, and the U.S. government does not receive customs revenue. Consumers save $10 per bike, but the government loses $20. Economists have shown that when a country enters such a “trade” customs union, the cost of trade diversion can outweigh the benefits of enhanced trade with other members of the customs union. The result is that the customs union could degrade the country. Trade unions and environmentalists in rich countries have been the most active in seeking labour and environmental standards. The danger is that the application of such standards could simply be an excuse for protectionist protectionism in rich countries, which would harm workers in poor countries. In fact, people in poor, capitalist or working-class countries were extremely hostile to the imposition of such standards. For example, the 1999 WTO meeting in Seattle was partially unsuccessful because developing countries opposed the Clinton administration`s attempt to include labour standards in multilateral agreements.
Within weeks, the Trump administration rejected the troubled Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership (TTIP) and announced plans to renegotiate the terms of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. Trade advisers in the new government led by economist Peter Navarro say a greater reliance on bilateral – and non-multilateral – trade agreements will allow U.S. negotiators to create provisions that would bring maximum benefits to U.S. exporters and consumers. What are the arguments for and against such an approach? This solution allows companies to improve the accuracy of their medium- and long-term investments amid the international trade challenges arising from the U.S. withdrawal from the TPP, the renegotiation of NAFTA and Brexit. Hufbauer notes that U.S. trade negotiators “will be full” to renegotiate the terms of U.S. trade with Mexico and Canada. And while some predict that future bilateral agreements could be concluded with Japan, and in particular with the UK, “that won`t happen soon,” he says. In both cases, the negotiation process would also face challenges. Hufbauer points out that in the case of the UK, “we won`t really know what we will get until they end their exit from the EU.
It`s at least two years [to the future] and it could take longer. That`s a good thing in the Trump administration. As far as Japan is concerned, the problem is that [Prime Minister Shinzo] Abe is very cautious… on a free trade agreement with the United States alone, because he knows where the United States.