steel tariffs

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.

Nation’s Capital Waiting, Watching for Deadlines, Shoes to Drop

Turbulent clouds hovering over the US Capitol are apropos for the bevy of big issues and decisions that are pending, and for the prospects of more unexpected shoes to drop.   Photo Credit: J. Scott Applewhite, AP

Turbulent clouds hovering over the US Capitol are apropos for the bevy of big issues and decisions that are pending, and for the prospects of more unexpected shoes to drop. 

Photo Credit: J. Scott Applewhite, AP

Washington, DC is full of apprehension as big events loom. More West Wing staff changes. An omnibus spending bill. President Trump’s message to Congress explaining his steel and aluminum tariffs. A pending deadline on the Iran nuclear deal. Anticipated face-to-face talks with North Korea. Possible gun violence legislation. And new developments in the Russian meddling investigation.

Last week saw a continuation of the revolving door for the Trump team and rumors persist that National Security Adviser H.R. McMaster may be the next to get the boot. Ousted Secretary of State Rex Tillerson and McMaster have urged a more cautious approach toward Iran, which runs counter to what Trump wants. The President’s personal staff remains in flux, too.

Intensive bipartisan negotiations continue on a massive spending package, which Congress tasked itself with approving by this Friday as part of brokered deal last month to prevent another federal government shutdown. There was hope pieces of the $1.3 trillion spending measure would fall into place so it could be passed in something resembling normal order. That hope appears dashed, as disagreements persist on everything from women’s health to Trump’s border wall and from campaign finance to a major transportation project in New York and New Jersey. Negotiations are tricky because many House and Senate Republicans are expected to oppose the measure as fiscally reckless, which means it will fall to Democrats to approve it, so they have bargaining power to set the terms.

Trump’s abrupt decision to impose stiff tariffs on steel and aluminum imports. Within 30 days of when the tariffs go into effect, Trump must tell Congress formally why he imposed them – and whether and how he may exempt some nations from the tariffs. Many congressional Republicans aren’t keen on the tariffs because of their unintended effects on other parts of the economy and their potential to start a global trade war. Trump’s top economic adviser quit after Trump announced the tariffs. The European Union and some steel-producing countries have threatened trade retaliation, either through tariffs or shifting large purchases, such as commercial aircraft, from US to other suppliers. The tit-for-tat could result in one or more countries, including the United States, filing unfair trade complaints with the World Trade Organization.

The Tillerson firing (the former head of Exxon-Mobile learned he was canned while on the toilet, according to press reports) and the shaky status of McMaster are likely linked to the May 12 deadline Trump faces on whether to extend the waiver on Iranian sanctions lifted as part of the 2015 nuclear arms deal. Trump said he reluctantly waived sanctions in January, but has sounded more bellicose since then toward Iran. He has sided with Israeli Prime Minister Benjamin Netanyahu who views the deal as weak. Trump also has aligned with Saudi Arabia in a conflict in Yemen that is effectively a proxy war between the Saudis and Iranians, which both seek greater influence in Middle East.

Trump said he wanted a secretary of state closer to his mindset as he approaches personal negotiations with North Korea.

Leader Kim Jong-un sometime this spring. Trump chose CIA Director Mike Pompeo to replace Tillerson, but that nomination could face trouble in the Senate as two GOP senators have already said they would oppose his confirmation. There is uneasiness that Trump and his administration may not be prepared to deal with Kim, but the talks appear on the road to happening as North Korea and Sweden, which is the American shadow voice, explore ways to find a peaceful resolution.

The Parkland, Florida school shootings sparked a vigorous, student-led national push for gun violence legislation. Florida lawmakers and GOP Governor Rick Scott approved a measure over objections from the National Rifle Association. The NRA subsequently challenged the constitutionality of one provision in the bill raising the legal age to buy long weapons from 18 to 21 years old. Trump has bounced around on what he would support, including support for arming some school teachers, but there are hints of a building bipartisan consensus in Congress to strengthen background checks before gun purchases – and possibly take further steps. For his part, Trump has asked his administration to find a way to ban bump stocks, a device used in the Las Vegas massacre to turn a semi-automatic weapon into a virtual machine gun.

Despite boastful predictions by Trump and his team that Special Counsel Robert Mueller’s investigation would wrap up soon, the opposite appears true. Last week’s news included subpoenas issued to the Trump Organization for documents relating to its dealings with Russian financial interests. The firing of Andrew McCabe from the FBI just before he was set to retire, which was celebrated in Trump tweets, may have added more propellant to charges of obstruction of justice. While the firing of McCabe may have been inspired as a way to discredit him as a witness against Trump, but it also removed any shackles McCabe may have felt to tell what he knows about Trump attempts to blunt the Russia meddling issue.

If that wasn’t bewildering enough, there also is the Stormy Daniels spectacle. The former porn star and her new attorney are keeping the story about a sexual encounter and hush money front and center. Trump has denied having a fling with Daniels, despite pictures of the two of them together and negotiations on Trump Organization email between his fix-it attorney and Daniels that resulted in a $130,000 hush money payment just before the 2016 election. Last week, Trump’s team baffled observers by declaring Daniels owed $20 million for violating terms of the non-disclosure agreement.

There is never a dull moment in the nation’s capital, and probably never an empty bar seat.