Editorial Board

Nafta Gets a Reprieve

And that's a good thing.

Let's change Nafta this much.

Photographer: Scott Olson/Getty Images

President Donald Trump has made a welcome retreat from his threats to scrap "the worst trade deal maybe ever signed anywhere." His administration's plan for renegotiating the North American Free Trade Agreement, released this week, is surprisingly benign.

Granted, the administration's declared purpose for those talks -- to reduce the U.S. trade deficit -- highlights its weak grasp of basic economics. The U.S. current-account deficit follows as a matter of arithmetic from the imbalance between the country's saving and investment. Unless the U.S. starts saving more or investing less, that deficit won't decline -- regardless of this or any other trade agreement.

The right way to judge trade deals is to ask instead whether they promote competition and efficiency for all participants. Nafta has met that test, so there's something to lose by meddling with it. Yet the agreement isn't beyond improvement. Despite the misconception that underlies the administration's whole approach, some good might even come of the approaching talks.

For instance, the administration wants to strengthen the pact's labor and environmental standards, and to improve protection of U.S. intellectual property. Maybe those ideas sound familiar: They were main elements of the ambitious Trans-Pacific Partnership negotiated by the previous administration and then abandoned by Congress. Changes along those lines, cautiously implemented, could serve to modernize Nafta and better equip it for modern trading conditions and new kinds of trade.

The administration also wants to introduce formal safeguards against currency manipulation, so countries can take action against partners that are holding down the value of their currency to boost exports. The issue is irrelevant in North America (nobody is accusing anybody else of being a currency manipulator) but U.S. officials apparently want to set a precedent for future deals. That's all right. Currency manipulation can indeed be a problem -- as it once was with China -- and measures to regulate it would be helpful.

Some of the administration's other ideas are more threatening. The administration wants to weaken the dispute-settlement procedure that gives Canada and Mexico a way to block proposed U.S. trade sanctions. Any such reform would also weaken U.S. rights in challenging Canadian or Mexican sanctions. Effective dispute settlement helps to stop trade disagreements from escalating.

The U.S. also wants to retain, and maybe strengthen, rules that allow different levels of government to prefer local over foreign producers. That's a pity. The benefits of trade accrue to the public and private sector alike. Do you want it done cheaper and better? Let trade do its job.

Overall, it's telling that Canadian and Mexican officials seem unfazed by the proposals, and that Democrats in Congress are attacking them for failing to say more precisely how they'll actually suppress trade. Consider that a valuable endorsement. Trump's theory of trade is wrong, but his Nafta strategy isn't.

(Corrects title of trade agreement in first paragraph.)

    --Editors: Clive Crook, Michael Newman

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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