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Sen. Toomey isn’t buying Trump-Pelosi trade proposal

Toomey says NAFTA was better for Pennsylvania steel, farms and other exporters and importers than what's replacing the 24-year-old pact

U.S. Sen. Pat Toomey (R-Pa.) speaks during a press conference at the U.S. Customs House on August 6, 2019 in Philadelphia. Toomey has come out against the new Canada and Mexico trade agreement backed by President Trump and House Speaker Nancy Pelosi, calling it inferior to the previous North American Free Trade Agreement, which Toomey says should have been updated, not scrapped
U.S. Sen. Pat Toomey (R-Pa.) speaks during a press conference at the U.S. Customs House on August 6, 2019 in Philadelphia. Toomey has come out against the new Canada and Mexico trade agreement backed by President Trump and House Speaker Nancy Pelosi, calling it inferior to the previous North American Free Trade Agreement, which Toomey says should have been updated, not scrappedRead moreJOSE F. MORENO / Staff Photographer

Even as Democrats push Republicans to remove President Donald Trump before next year’s election, the president and the parties have shown they can still work together on things that affect Americans.

Check out the budget deal that sends defense-factory dollars back to such factories as Boeing’s Ridley Township plant — and the new trade pact with Canada and Mexico, heading toward a Senate vote after passing the House 385-41 last Wednesday night.

But U.S. Sen. Pat Toomey (R., Pa.) isn’t buying that last one. He’s taking a stand against the new deal, against the unified front of Trump, Republican leaders, and top Democrats led by House Speaker Nancy Pelosi backing Trump’s United States-Mexico-Canada Agreement (USMCA). (In the House, it was mostly liberal Democrats like U.S. Rep. Frank Pallone [D., N.J.] who voted no.)

Backers say the new pact will give Pennsylvania dairies and other farmers greater access to Canadian markets. And carmakers will need to produce a greater share of parts in the U.S. and Canada, rather than Mexico, to escape tariffs. So foreign manufacturers will need to build plants or hike production north of the border.

Toomey prefers the old NAFTA to the slightly more restrictive new pact because it will force automakers to build more cars in high-wage Canada and the U.S. while limiting cheaper imports from Mexico, Toomey told CNBC last week.

In the 2016 election, Trump ran against the 1995 North American Free Trade Agreement (his opponent, Hillary Clinton, was also critical of NAFTA, though her husband had signed it), vaguely blaming trade pacts for the fact the U.S. imports more goods than it exports and the heavy decline in U.S. manufacturing since World War II.

“We’ve got a trade deficit — with Mexico? Who cares?” Toomey asked. “Mexico is our neighbor, it’s still a poor country but has been successful in building an auto export business, helping American consumers. Mexico should be our legal, mutually committed ally — not an existential competitor like China.”

Trump (again, like Hillary) also opposed, and as president, killed Obama’s secretive Trans-Pacific Partnership, which would have united the U.S. and its allies in coordinating their markets against outlaw exporter China.

Toomey says the Trump- and Pelosi-backed NAFTA replacement deal, USMCA, is not better law and will tend to reduce, not increase, profitable trade for Pennsylvania with its two main foreign trade partners: Canada and Mexico.

The House is expected to clear the deal this week and the Senate, despite Toomey, will likely confirm it early next year, says analyst Brian Gardner in a report to clients of investment bank Keefe, Bruyette & Woods.

He’s more worried about opposition in Mexico, where autoworkers fear that the deal will kill their jobs, and Canada, where the metals industry worries that it will crimp aluminum exports.

In a note to constituents, Toomey writes:

“NAFTA is the epitome of fairness — there is complete reciprocity, zero tariffs on all manufactured goods and nearly all agriculture goods, no quotas, and no obstacles to trade between the three countries.”

Thanks to NAFTA, in Toomey’s view, factory and shipping investments on both sides have helped boost Pennsylvania’s trade with Mexico more than 500% since NAFTA was passed 24 years ago — a big jump even when you discount inflation. “Hundreds of thousands of good-paying Pennsylvania jobs” now depend on exports to Mexico and Canada and on useful imports.

By contrast, USMCA is a limited agreement — it would last four U.S. presidential terms. That raises a frequent criticism business leaders levy against our divided U.S. political leadership: Companies are reluctant to make long-term investments when they have to worry that tax, trade, labor, financial, or environmental regulations may change.

Toomey acknowledges USMCA adds “a few sensible modernizations” like stricter intellectual property protections — though the U.S. Chamber of Commerce complains that other protections, especially for biopharma developers, were scrapped.

Indeed, the Chamber backs the deal, with reservations: “The agreement cannot stand as a precedent for future agreements” without stronger protections for U.S. drugmakers, Chamber chief executive Thomas Donahue wrote to members. American prescription drugs are the world’s most expensive; companies fear that cheaper drugs from Canada or other trading partners would eat into profit margins.

He objects to scrapping NAFTA’s Chapter 11, the Investor-State Arbitrations system, which Toomey says had worked in favor of U.S. companies. And he especially objects to the way USMCA adds a $16-an-hour minimum wage mandate — which in practice favors Canadian and U.S. plants over cheaper Mexican manufacturing, including cars made for U.S. automakers.

The new labor rules keep more of the declining population of U.S. autoworkers busy for a time. But it will also make cars and trucks more expensive for Americans and for North American vehicles in Asian and European export markets. Bottom line, for Toomey: “USMCA will likely lead to less growth, less trade, and less job creation.”

Toomey staffers insist this is a principled opposition, like Toomey’s consistent attempts to kill the Import-Export Bank despite its support by Boeing, General Electric, and other big Pennsylvania exporters.

Specific to Pennsylvania, he’s worried drug companies will lose intellectual property protection for biopharma therapies, and that steelmakers will follow Sharon Steel in laying off Pennsylvania workers because cheap steel imports will become more expensive. On Dec. 19, U.S. Steel said it will close most of its Detroit integrated steelworks, which ships metal to nearby auto plants, and consolidate production in Gary, Ind. The company has bet more than $1 billion on updates to its Pittsburgh-area plants in hopes it will win new orders — which so far have not materialized.

Other area senators (who are Democrats) are lining up with Trump. “Pelosi and House Democrats got the best deal they could out of this administration,” U.S. Sen. Bob Casey (D., Pa.) said in a statement. “I am reviewing the content of the proposal and making my decision based on whether there is measurable benefit for jobs, wages and workers in Pennsylvania.”

“After years of uncertainty thanks to the president’s haphazard trade wars, it is good news for American farmers, manufacturers, producers, and retailers that we were able to get to ‘yes’ on USMCA,” said U.S. Sen. Tom Carper (D., Del.).

“I am glad that an agreement could finally be reached, and I applaud Speaker Pelosi,” the Trade Representative’s office, and others in government for cutting the deal, including environmental-impact reviews, Carper concluded.