Obama Decides to Try Smoot Hawley

I’ve written before about a dangerous provision of the Omnibus appropriations legislation now under consideration in the Senate. The bill violates the U.S. commitment under NAFTA to allow Mexican trucking companies to operate in the U.S., so long as they meet all the standards to which U.S. companies and trucks are held. If Obama signs this measure into law, Mexico will have the right to retaliate against the U.S. – presumably by restricting exports from the U.S. to Mexico.

Barack Obama opposed the Mexico truck pilot program when he was in the Senate, but you might expect him to rethink his view now that he sits in the Oval Office. After all, he campaigned on a promise to restore good relations with our neighbors, and on a promise to restore economic growth. Picking a fight with Mexico now would be a very public renunciation of both those promises.

The Mexican government has not yet shown its cards; the Mexican Ambassador has merely stated that Mexico ‘will keep all its options open.’ One (subscription only) trade journal reports however, that Mexico will exercise its right to retaliate:

Mexico is threatening tough trade retaliation if Congress and the Obama administration move ahead with proposals that would ban Mexican truckers from travelling throughout the United States, as spelled out in the North American Free Trade Agreement (Nafta).

The pending confrontation could prove to be contentious, fraught with even more potential peril than the recent “Buy America” flap over steel, according to trade sources in Washington.

Sources confirmed that Arturo Sarukhan, Mexico’s ambassador to the United States, outlined his country’s trade retaliation plans at a closed-door meeting with key Washington policymakers, including congressional staffers and lobbyists, at a Georgetown hotel this month.

Details on the precise nature of the retaliation aren’t known, but sources suggested it could be aimed at sensitive sectors in the United States, including steel, auto parts, financial services and possibly others.

If your job depends on trade in steel, auto parts or financial services, Obama is prepared to put you at risk to satisfy the Teamsters – the lead opponent of this trucking program. The teamsters violently oppose it because when Mexican or U.S. trucks are forced to stop at the border, the cargo has to be transferred to another truck by a Teamster. If you allow Mexican and U.S. trucks to operate across the border, there’s no need of a few unionized workers to move boxes.

If you’re angry at the notion that Obama is willing to sacrifice your job for those of a few teamsters, don’t feel bad: once the U.S. fires the first shot in this trade war, there are likely to be plenty of other victims as well. That’s because it’s impossible to predict where retaliation will stop once it gets started. When the U.S. adopted the Smoot-Hawley tariff at the onset of the Depression, few imagined it would lead to the fall of the Canadian government, and a full-blown trade war between the U.S. and Canada. Yet that’s what happened.

And if there’s any doubt about how Mexico perceives this slap in the face, take a look at this op-ed in Mexico City’s El Universal, written by Luis de la Calle – Mexico’s chief NAFTA negotiator:

Shameful Action in the U.S. Congress

It’s nothing new for Congressmen and Senators of the Democratic Party to seek to prevent the operation of Mexican motor freight companies in the United States. They’ve done it before, under pressure from the Teamsters, since the realization of the opening to cross-border transport in NAFTA in December 1995.

The novelty is that now they do it as a party in government – controlling both the Executive and the Legislature – and should act with a much greater responsibility at no longer being an opposition party. It’s one thing to mindlessly oppose the White House in Republican hands, but it’s another to propose that the U.S. violate its international commitments, deny its own laws and work programs, and take measures tantamount to expropriation, and do all this without due process of law and without debate in Congress…

Two features distinguish this vote: one – to resort to cancellation of the funds is clear evidence that the opponents of the program lack substantive arguments. So they choose to cut the funds… Two, the leadership of the Democratic Party in the House sent the initiative to the full House under a “closed rule” that prevents debate on the merits. The congressmen voted without knowing if the demonstration program has worked correctly or if the operations of Mexican trucks in the United States are safe…

Barack Obama should not allow his own congressional Democrats to corner him and put him in an impossible situation: the adoption of Dorgan’s amendment violated the international commitments of the United States, overturned a program launched by the government and is equivalent to a expropriation of investments made by participating companies… avoiding ruling on the merits of the case and is discriminatory to only apply to drivers and Mexican companies…

There is no doubt today that the Mexican government was wrong in 1995 to choose not to establish a dispute settlement panel when the United States violated NAFTA and made that mistake again in 2001 when – having won the arbitration decision – chose not retaliate. Under current conditions, it seems unlikely that Mexico would allow another unjustified violation of NAFTA and not retaliate.

So Mexico’s former top trade negotiator says Mexico should retaliate when Barack Obama formally puts the United States in violation of treaty commitments, and Mexico’s Ambassador is reportedly telling lawmakers that Mexico will retaliate.

Is Barack Obama willing to say no to labor, change course, and save this country from a major international embarrassment?

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