The Trump administration has muscled Canada into joining a revamped North American trade deal, sealed a pact with South Korea and coaxed a reluctant Japan into agreeing to one-on-one trade talks.
All in the past two weeks.
To President Donald Trump and his allies, the results vindicate his drive to upend traditional trade policy and deploy import taxes — real and threatened — as a cudgel to bully concessions out of America’s trading partners.
“Without tariffs,” Trump bold declared Monday after his team announced that Canada had followed Mexico in agreeing to a revamped North American deal, “we wouldn’t be standing here.”
Some likeminded business groups agree that Trump’s in-your-face style, a far more confrontational stance than his predecessors deployed, deserves credit.
“Aggressive unilateral action is making deals more possible,” said Michael Stumo, CEO of the Coalition for a Prosperous America, which supports a combative U.S. trade policy.
Negotiating without a credible threat of trade sanctions, Stumo argued, “leaves no incentive for other countries to agree to anything new.”
Critics, though, contend that Trump’s apparent breakthroughs appear much more impressive than they actually are. What’s more, they say, the backlash the administration could face in the future from formerly friendly trade partners could diminish whatever gains have been achieved.
“You set a bunch of fires … you put them out and you call yourself a hero,” said Philip Levy, senior fellow at the Chicago Council on Global Affairs and a White House economist under President George W. Bush.
The critics say the recent trade deals have produced few concrete gains and offer scant reason for optimism about the administration’s riskiest gamble of all: The trade war it’s ignited with China, the world’s second-biggest economy after the United States.
Trump entered the office vowing to reduce America’s gaping trade deficit — $553 billion last year — with the rest of the world by tearing up trade agreements and confronting abusive practices by China and other countries. In March, he began imposing taxes on steel and aluminum imports. Four months later, he threatened to target foreign autos and auto parts — imports that amounted to $340 billion last year.
Trump justified the moves by arguing that the imports posed a threat to U.S. national security. Many trade analysts dismissed that rationale as preposterous. Most of the targeted imports, after all, come from U.S. allies — Canada, the European Union and Japan.
Whatever the legitimacy of his tariffs, by imposing and threatening them on national security grounds, Trump created leverage for himself. He upped the ante by threatening to abandon a regional pact with Canada and Mexico — and thereby imperil supply chains that crisscross borders — unless he could get what he considered an acceptable rewrite of the North American Free Trade Agreement.
America’s trading partners began to buckle under the pressure.
To avoid the steel and aluminum tariffs, South Korea agreed to a rewrite of a 2012 trade deal with the United States. Under the revamped version, Seoul submitted to quotas on its steel and aluminum exports to the United States and modestly opened South Korea’s auto market to U.S. automakers, among other things.
Japan managed to halt the threat of U.S. auto tariffs by reluctantly agreeing last month to bilateral trade talks with the United States. Tokyo had resisted Trump’s entreaties, preferring a broader trade pact, like the 12-country Trans-Pacific Partnership negotiated by the Obama administration. But Trump had abandoned the TPP on his third day in office.
Negotiations on NAFTA 2.0 began in August 2017 and inched ahead for months. Mexico gradually began to yield to the risk of losing access to America’s market. It reached a deal with the administration in August that was intended, among other things, to shift some manufacturing and investment away from low-cost Mexico to the United States.
Left out, Canada was forced to negotiate its way back into the North American trade bloc. Facing a U.S.-imposed deadline of midnight Monday, the two sides reached a deal that preserved a three-country agreement, renamed the United States-Mexico-Canada Agreement.
Mickey Kantor, a former U.S. trade representative who is a partner at the Mayer Brown law firm, praised the negotiators for updating a pact that hadn’t been changed in 24 years, to reflect the rise of the digital economy.
But for Trump’s America First trade policy, said Jacob Kirkegaard of the Peterson Institute for International Economics, the “returns are pretty paltry.”
Canada agreed to modestly open its protected dairy market to American farmers. But that concession wasn’t much more than Ottawa had agreed to in the TPP. Indeed, much of Trump’s new North American pact comprises leftovers from the old NAFTA and the TPP, noted Daniel Ujczo, a trade attorney at the Dickinson Wright law firm.
Duncan Wood, director of the Mexican Institute at the Wilson Center think tank, said he doubts the new NAFTA will do much to reduce America’s trade deficit with Mexico ($69 billion last year) or to shift investment bound for Mexico to the United States. And, he suggested, any gains for the United States have come at a cost.
“What was lost along the way here,” Wood said, “was political good will on the part of Mexico and Canada. It’s been a bruising period.”
Yet America’s allies had powerful incentives to reach an accord with Trump. Besides exporting cars and other industrial products to the U.S., South Korea and Japan rely on America’s military protection. The U.S. market absorbs 80 percent of Mexico’s exports and 76 percent of Canada’s.
As America’s strategic competitor, China seems far less likely to yield to pressure. Even so, Trump has imposed tariffs on $250 billion in Chinese imports. Beijing has counterpunched with import taxes on $110 billion of American products.
At issue are the policies China is using to try to overtake America’s technological dominance. These tactics, the U.S. charges, include cyber-theft and pressure on foreign companies to hand over technology in exchange for access to the Chinese market. Analysts say China won’t likely give up policies meant to secure its long-term prosperity.
In regard to Beijing, Kantor said, “I don’t think we can use the same hammer.”
(AP)
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One Response
Much ado about nothing. The “new” NAFTA, branded by Trump as USMCA, is not substantively changed. Most of the new language was lifted verbatim from the Trans Pacific Partnership agreement from which Trump withdrew last year before it was finalized calling it the “worst” deal in history. After all the hyperbole about Canada’s 300 percent tariffs on dairy products he won a big 3.7 percent share of the Canadian market for the U.S. He also caved on his demand that the new agreement eliminate the current third party dispute resolution procedures. While Trudeau will get some flak from dairy farmers for yielding even this de mimimus market share to Trump (so he has some basis to declare “he won”, the Canadians join all the other countries who at the UN last week, are laughing at the Trumpkopf.