Mexico

Trump Trade Initiatives Face Stronger Headwinds

Regions like the Pacific Northwest rely heavily on international trade to bolster their economies. Concerns are growing the US economy may suffer because Trump administration trade initiatives such as the new NAFTA are foundering.

Regions like the Pacific Northwest rely heavily on international trade to bolster their economies. Concerns are growing the US economy may suffer because Trump administration trade initiatives such as the new NAFTA are foundering.

Trump administration trade talks with China remain in limbo and negotiations with the European Union have flatlined. Now Trump’s new NAFTA trade agreement is faltering in Congress. The absence of agreements and the continuation of tariffs are piling more stress on manufacturers and farmers. 

No one expected trade talks with China would be a cake walk. Bruised relationships with European political leaders may contribute to stalled negotiations with the EU over agricultural products. But Trump trumpeted his success in maneuvering Mexico and China into a trade deal only to see the agreement flounder amid bipartisan complaints.

The early onset of the 2020 presidential election only complicates the situation with trade policies morphing into trade politics.

Trump’s protectionism has begun to chafe with traditionally free-trade Republicans, many of whom represent agricultural interests that are paying the price of a trade war with lost sales and the prospect of lost markets.

Republican Senate Finance Chair Charles Grassley has flatly told Trump he won’t move the new NAFTA trade deal until Trump lifts steel and aluminum tariffs on Mexico and Canada. Canada has strongly objected to the continuing tariffs, which has become an issue in its upcoming elections. Trump trade officials believe Chinese steel producers are evading the tariffs by shipping through Mexico.

“The tariffs are going to come off because the president has a good agreement,” Grassley told The Washington Post. “It’s just a matter of his realizing that nothing’s going to happen until the tariffs go off. And so the tariffs come off if he wants to get a win.” Grassley said Trump has refused because he feels the tariffs have revived the domestic steel industry and is insisting on quotas as a fallback when tariffs are lifted.

The AFL-CIO has refused to endorse the trade agreement until the Mexican parliament approves promised labor reforms. House Democrats aren’t on board, either. Speaker Nancy Pelosi said she won’t put the agreement on the House floor until she sees proof of tougher, effective enforcement provisions. 

Liberal Democrats say the deal is a nonstarter because of provisions they say codify exclusive 10-year rights to biologics, which they view as a “total giveaway to Big Pharma.”

Trump officials remain optimistic. Treasury Secretary Steven Mnuchin posed for pictures late last week after a bargaining session with his Chinese counterparts that he deemed “productive,” even as several deadlines have come and gone. The International Trade Commission’s analysis of new NAFTA won’t be completed until mid-April, which starts the congressional clock on approval.

However, negotiations face a political clock as leading Democratic presidential contenders oppose the new NAFTA, heartland farmers grow restive as they see hard-earned global markets evaporate, the US economy begins to show signs of stalling and trade deficits keep climbing.

 

NAFTA with a New Name

The Trump administration successfully negotiated an updated North American Free Trade Agreement with modernized provisions, concessions of value to farmers and automakers and, of course, a new name. However, politics could still undermine the deal when it goes to Congress and consternation remains among trading partners with continuing Trump tariffs on steel and aluminum.

The Trump administration successfully negotiated an updated North American Free Trade Agreement with modernized provisions, concessions of value to farmers and automakers and, of course, a new name. However, politics could still undermine the deal when it goes to Congress and consternation remains among trading partners with continuing Trump tariffs on steel and aluminum.

The Canadians agreed to final terms for a $1.2 trillion North American free trade agreement that gave President Trump a political triumph and NAFTA a new name. However, the deal doesn’t end a simmering trade war sparked by US tariffs on steel and aluminum and still faces a treacherous political road to passage.

Trade experts gave credit to the Trump administration for completing a three-way deal to update the 25-year-old trade that candidate Trump derided as terrible. Trump critics note the new trade pact is largely the same car with a rebranded nameplate to appease Trump. Peter Navarro, Trump’s trade adviser, said the foundation remains, but the superstructure is superior. 

The United States-Mexico-Canada Agreement (USMCA) still must be approved by Congress, which seems more likely after cliffhanger negotiations with Canada prevented Trump from submitting just a bilateral agreement with Mexico. The agreement also must be ratified by the respective legislative bodies in Canada and Mexico.

Most everybody agreed NAFTA needed a refresher, if for no other reason to account for a phalanx of digital industries and e-commerce that didn’t exist when it was signed. There also was a push to strengthen intellectual property protections, the underlying issue that has sparked a Trump-inspired trade war with China. There are reportedly 63 pages worth of provisions that address patents and trademarks, including two additional years of protection for biologic drugs, which Trump hailed as a key to US medical innovation.

A major sticking point was Canada’s barrier that prevents US dairy farmers from penetrating their market. The Canadians traded some of that protection to retain a trade dispute resolution provision that Trump wanted to scrap. Somewhat ironically, Canadians had agreed to a similar sized dairy concession in the Trans-Pacific Partnership, which Trump abandoned when he took office.

Domestic car manufacturing was a core reason why Trump pushed for a better North American trade agreement. The agreement reached earlier with Mexico increases the North American auto content requirements and requires more content from higher paid autoworkers to qualify for duty-free treatment. AFL-CIO leaders withheld their support for the change, saying they doubted the higher wages and better working conditions in Mexico can be enforced. The USMCA effectively requires unionization of Mexican autoworkers, which runs counter to state-level right-to-work laws, which political conservatives have pushed for in the United States.

Economists fret that higher wages will make North American vehicles more expensive and less competitive against vehicles imported from overseas, which face a nominal tariff. Trump is pledging to address the import tariff and potentially replace it with quotas. There also is a side letter to the agreement that preserves Trump’s ability to impose tariffs on automobiles assembled in Mexico or Canada. 

Trump sought a 5-year sunset clause on the deal. In the final agreement, the USMCA has a 16-year life span, with a review after six years.

A key element of the deal for the incoming Mexican president is a clause that restates Mexico’s claim of ownership of all hydrocarbons in its subsoil. The provision doesn’t prevent foreign companies from producing oil in Mexico.

While agreement on NAFTA modernization brought sighs of relief, there is still consternation over steel and aluminum tariffs – and their rationale: protecting US national security. The pretense for the tariffs has irked Canadians who don’t view themselves as security risks to the United States.

Looming elections that could flip control of the House to Democrats might complicate approval of the USMCA. Democrats may not want to bless a Trump achievement before the 2020 presidential election and Republicans may decide to poke the eye of unions, which have been a major force behind revamping NAFTA. That could leave the USMCA an agreement without a country and further muddy the waters on US trade policy.

 

Zig-Zagging Trump Trade Policies Put Northwest on Edge

Trump trade policies seem destined to trigger a global trade war, which could have a serious economic impact on the Pacific Northwest that relies heavily on export of airplanes, machinery, technology, agricultural products and services. Disrupted trade also could harm  manufacturers with supply chains throughout the Pacific Rim.

Trump trade policies seem destined to trigger a global trade war, which could have a serious economic impact on the Pacific Northwest that relies heavily on export of airplanes, machinery, technology, agricultural products and services. Disrupted trade also could harm  manufacturers with supply chains throughout the Pacific Rim.

The Pacific Northwest is especially dependent on international trade and the threat of a global trade war has many business leaders on edge. Perhaps none more so than at Daimler Trucks in Portland that employees more than 2,000 workers who are mostly engineers.

Despite some mixed signals, President Trump has moved ahead to impose a 25 percent tariff on imported steel and a 10 percent on imported aluminum. He also has singled out Mercedes-Benz for an outright ban on imports, citing national security and his personal angst at seeing New York’s Fifth Avenue clogged with the popular German luxury car.

Mercedes-Benz manufactures SUVs, GLE coupes and C-class cars at its Tuscaloosa, Alabama plantBMW manufactures luxury cars in Spartanburg, South Carolina, which the company says produces 1,900 vehicles per day, the highest daily output of any BMW car plant in the world. Spartanburg is the exclusive manufacturing site for BMW’s X-class vehicles, which are exported worldwide.

For Oregonians, a greater concern would be the impact of Trump’s tariffs on Daimler Trucks, which maintains its North American headquarters in Portland. Much of the company’s truck manufacturing has been shifted to the Southeast and Mexico. What largely remains in Portland are corporate teams and engineers “designing the future of commercial vehicles.”

Daimler Group is the corporate parent for Mercedes-Benz Cars and Daimler Trucks.

President Trump has singled out German car manufacturer Mercedes-Benz, which is a sister company to Daimler Trucks that manufactures and designs commercial vehicles at its North American Headquarters in Portland

President Trump has singled out German car manufacturer Mercedes-Benz, which is a sister company to Daimler Trucks that manufactures and designs commercial vehicles at its North American Headquarters in Portland

Officials at Daimler aren’t alone in fretting about fallout from a potential trade war. The Seattle Times quoted officials from the aluminum and agricultural sectors, as well as union officials, raising alarms about impacts from tariffs on multi-country supply chains, direct exports and price increases that could affect everything from Boeing airplanes to new housing. A Seattle homebuilding official said higher tariffs on steel could increase the price of a new house by up to $5,000.

Depending on how China and the European Union impose reciprocal tariffs, emerging markets pursued by Northwest exporters such as winemakers could be squeezed. Tariffs slapped on by Mexico and Canada also could have disruptive effects.

In addition to the tariffs, what baffles and irks US trading partners is the unpredictability of Trump's trade policy, if it can be called a trade policy. Negotiations occur, agreements are reached and then Trump goes in a different direction, as he did with the bilateral trade deal struck with South Korea and with the Chinese talks two weeks ago.

Trump’s trade steps also raise hackles on Capitol Hill. Many Trump supporters were stunned when he agreed to back off punishment that the Chinese said could force the collapse of ZTE, a huge telecom company facing charges of ignoring US export sanctions imposed on North Korea and Iran. A Texas court fined ZTE $1 billion and ordered it could not receive any US-made components and software for seven years.

EU officials, who share US concerns about restrictive Chinese industrial policy and alleged intellectual property theft, have urged the Trump administration to form a united front on policies and negotiations aimed at winning major concessions from the Chinese.

However, Trump’s mistrust of multilateral arrangements appears to drive his actions. Despite warnings from economists, Trump has put trading relations with Canada, Mexico, China, South Korea, Japan and the European Union in a state of flux. Reciprocal tariffs are being imposed and talks about updating existing trade deals have stalled.

Trump’s nationalist trade policy may win applause in steel-producing states, but could trigger discontent and growing fears of an economic slowdown in the rest of the country as crucial midterms approach this fall that will determine who controls Congress for the next two years.

Mexico Moves Past Paralysis

The news has been filled for weeks about the disastrous fallout expected from $85 billion in across-the-board budget cuts that go into effect Friday, all because Congress can't get its act together to avoid so-called sequestration. 

Leave it to New York Times columnist Thomas Friedman to find an improbable contrast in governance in, of all places, Mexico. 

Americans think of Mexico as a basket case under the thumb of violent drug lords. In a column, Friedman says that's still true, but points out a wave of new activism aimed at breaking political paralysis and building a stronger economy.

"Mexico still has huge governance problems to fix," writes Friedman, "but what's interesting is that, after 15 years of political paralysis, Mexico's three major political parties have just signed a 'grand bargain' under the new president, Enrique Pena Nieto, to work together to fight the big energy, telecom and teacher monopolies that have held back Mexico. If they succeed, Mexico will teach us something about democracy."

The Mexican turnaround, Friedman explains, is not limited to government. He notes an astonishing number of new technology startups in Monterrey, which he visited. Friedman attributed this newfound economic energy to 50 percent of the Mexican population being 29 years or younger and to "cheap, open source innovation tools and cloud computing" — or in other words, 21st Century digital infrastructure. Mexico also is producing more engineers and skilled workers, helping to attract U.S. and other foreign investment, which pushed up its growth rate last year to 3.9 percent.