The U.S. won’t renew the U.S.-Mexico-Canada Agreement in its current form, U.S. Trade Representative Jamieson Greer said on July 1. The decision leaves North America’s trading rules uncertain. Canada and Mexico wanted a 16-year extension of the pact. Instead, the agreement now enters a cycle of annual reviews, with a hard expiration date of 2036 if the three countries never reach a resolution.
The main value of a trade agreement isn’t that it lowers tariffs but that it eliminates doubt. USMCA’s greatest achievement was never a slate of tariff rates, exceptions and rules. It was the confidence that the rules would stay stable long enough for companies to make plans and act on them. A parts supplier in Michigan could sign a 10-year lease and order supplies because the terms governing what crossed the border were set.
Consider a manufacturer trying to determine whether to build a plant. The investment takes 15 years to pay off. The rules that determine whether it is profitable are now up for renegotiation every 12 months. The rational move is to wait, to build smaller or to build elsewhere. The cost of that uncertainty won’t make headlines. It will show up as factories never constructed, expansions delayed and workers never hired.
Annual reviews destroy confidence in business. Canadian and Mexican officials as well as members of Congress saw this coming, warning during the original hearings that a mandatory review clause would create the uncertainty that discourages investment.
The administration argues that recurring reviews will strengthen America’s bargaining position and create leverage to reduce trade deficits. But trade deficits have never been a score card. Your persistent trade deficit with the grocery store doesn’t mean you are losing.
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Investment requires confidence, and confidence requires stability. That stability is what the administration chose not to renew.
Is America just another country?
That may seem like an odd question to ask as we celebrate the 250thanniversary of our Declaration of Independence, the greatest testament to individual liberty and popular sovereignty the world has ever known. But, amazingly, some on the right are making just that claim. America, they tell us, isn’t an idea; it is a nation built by a distinct people based on shared ancestry, shared soil, shared history and shared culture — and that these, not the lofty ideals of our Declaration, are what make us great.
This is dead wrong. We are the first nation in human history built not on blood and soil but on an idea: the idea of human freedom. What unites us as a people is not a common bloodline, but our common creed.
“There is at present no American ethnicity,” historian Gordon Wood explained earlier this year at the American Enterprise Institute, and “there was no such distinctive ethnicity even in 1776.” In 1790, Wood said, only 60 percent of the White population was English. The citizenry was what John Adams called a “Hotch potch of people such an omnium gatherum of English, Irish, German, Dutch, Sweedes, French, &c. that it is difficult to give a name to the Country, characteristic of the people.”
What gave us that defining characteristic was our creed. Most European states, Wood said, “were created out of a prior sense of a common ethnicity or language.” But in the United States “the process was reversed.” We were united as one people by a shared belief in a set of ideas — that “all men are created equal” and are “endowed by their Creator with certain unalienable Rights” and that governments derive “their just powers from the consent of the governed.” This unique patrimony is the reason Americans can make the audacious claim that we are an “exceptional” nation.
Whether they realize it or not, the blood-and-soil nationalists reject the very idea of American exceptionalism. If what makes us a country is shared land, language and culture, well, that is true of every country. They appear to agree with President Barack Obama, who infamously declared, “I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.”
In other words, he did not believe in American exceptionalism. And neither do these conservatives. Indeed, by seeking to graft European-style “blood and soil” nationalism on the American body politic, they are inadvertently making common cause with the far left, which also rejects American exceptionalism through its insistence that America’s founding ideals were always a lie told in the service of slavery and oppression.
GMU Econ alum Jeremy Horpedahl corrects an egregious error, committed by Fox Business, about immigration’s effect on U.S. housing prices. (HT Scott Lincicome)
Francois Melese’s letter in today’s Wall Street Journal is excellent:
Newly elected Democratic socialists on their way to Washington would do well to read Phil Gramm and Michael Solon’s excellent op-ed debunking the myth that Ronald Reagan’s tax cuts heavily favored the rich (“The Surprising Truth About Reagan’s Tax Cut,” June 20).
The familiar refrain that the rich should “pay their fair share” overlooks a basic fact: They already do. The authors note that in 2022 the top 20% of taxpayers paid 88% of all federal income taxes. But it’s important to add that they earned little more than half of total income that year. In other words, their share of taxes far exceeded their share of income.
The bottom quintile, by contrast, had an average effective income tax rate of minus 10%. Thanks to refundable tax credits like the Earned Income Tax Credit and Child Tax Credit, they got more back from Washington than they paid in income taxes. The U.S. federal income tax code that Democratic socialists attack and demonize is already the most progressive in the developed world.
Matt Ridley writes that “for me the most momentous happening in 1776 was the inauguration of James Watt’s first practical steam engine” – an event that occurred literally within days of the publication of Adam Smith’s Inquiry Into the Nature and Causes of the Wealth of Nations. Two slices from Ridley’s essay:
We have the industrial revolution backwards. We tend to think that clever people in powdered wigs came up with ideas – democracy, free enterprise, stock markets, science, intellectual property – that enabled men with dirty fingernails to set about changing the world. But I think it was more that the fingernail fellows made the wig wearers possible. Smith’s division of labour and Jefferson’s democracy were all very well. But Thomas Newcomen and Watt mattered more. Thermodynamics – the science of heat and work – was invented to explain steam engines, not vice versa.
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If hydrocarbon energy was vital to Britain’s pioneering rise in living standards through industrialisation, the war on hydrocarbons is the chief cause of Britain’s pioneering stagnation through de-industrialisation. The first country into the industrial revolution is now the first deliberately to drop out of it.
Our deceleration is accelerating. Britons are now consuming just 61 per cent as much energy per capita as they did in 2001 – almost halving the practical work we can do. China is consuming twice as much as us per head, or 350 per cent as much as it did in 2001. One by one, we have closed most of our productive industries: oil and gas, aluminium, steel, heavy engineering, mining, cement, chemicals, pharmaceuticals, fertiliser, ceramics. Now even artificial intelligence is leaving or shunning our shores.
The worst part of this is that we have done it deliberately. We set out to pretend we are reducing emissions of carbon dioxide when all we are doing is exporting them. We ban shale gas – but import shale gas from America at much higher cost and much higher carbon footprint. We ban North Sea oil exploration – but import North Sea oil from Norway. We subsidise wood burning at Drax power station – but don’t count the emissions because the wood comes from North Carolina. We load emissions trading taxes on to oil refineries, then wonder why two out of six closed last year and we must import most of our jet fuel, diesel, ethylene and fertiliser.
Alex Tabarrok warns that the U.S. is increasingly showing signs of practicing the dark arts mastered by the British at impoverishing its citizens. Here’s his conclusion:
It is discomforting to watch the birthplace of the Industrial Revolution, individual rights, and free speech—the nation that once built the railways, the steam engines, the factories that remade the world—lose the capacity to build much of anything, or even to tolerate people speaking their minds. In parallel, instead of dealing with our real problems—almost all of our creation—the right gets literally hysterical over symbolic culture-war questions like birthright citizenship, while the left nominates candidates with Marxist-Leninist sympathies. The abundance and progress movements are some of the few shining lights. It’s not too late. But Great Britain is a warning.
My Mercatus Center colleague Jack Salmon busts Mamdanian myths about grocery stores. A slice:
The most common argument for government grocery stores is that they’ll be cheaper because they won’t have to satisfy shareholders. The logic sounds plausible until you look at how razor thin grocery store profit margins actually are.
Grocery stores, on average, operate on net profit margins of about 1–2% after taxes. During the pandemic, when supply chains were a mess and demand was unusual, margins briefly hit 3%. These are not the fat profits of a cartel; they are the thin margins of an intensely competitive industry. Of those profits, roughly 35–40% is returned to shareholders in the form of dividends. The rest is reinvested into operations, capital expenditures, expansion, and debt reduction.
