U.S. makes nice with trade allies

NAFTA redo part of plan to take on China in dispute

WASHINGTON — Gathering strength for a trade war with China, the United States appears to be trying to patch things up with its friends.

U.S. and Mexican negotiators were meeting Thursday and today in Washington to work on a rewrite of the North American Free Trade Agreement — an effort that looked virtually dead a few months ago. And last week President Donald Trump announced a cease-fire in a potentially destructive dispute with the European Union over trade in cars, trucks and auto parts.

Trump campaigned on a vow to overhaul the 24-year-

old NAFTA with Canada and Mexico, a pact he called a job-killing disaster.

NAFTA did away with most barriers, including tariffs, on trade among the U.S., Canada and Mexico. Trump and other NAFTA critics say the agreement encouraged U.S. manufacturers to move factories — and jobs — south of the border to take advantage of lower-wage Mexican labor. He vowed to pull out of NAFTA if he couldn’t get a deal he liked.

Meanwhile, the Trump administration ratcheted up the pressure on China this week by proposing a doubling in tariffs on $200 billion in Chinese imports. Beijing has vowed to counterpunch with trade sanctions of its own.

Commerce Secretary Wilbur Ross signaled there’s more pain ahead unless China changes its economic system, as the Asian nation repeated it will never surrender to U.S. trade threats.

“We have to create a situation where it’s more painful for them to continue their bad practices than it is to reform,” Ross said in an interview on Fox Business Network on Thursday.

“The reason for the tariffs to begin with was to try and convince the Chinese to modify their behavior. Instead they have been retaliating. So the president now feels that it’s potentially time to put more pressure on, in order to modify their behavior,” he said.

Talks on a new NAFTA began almost a year ago but got bogged down over the Trump team’s insistence on measures that would discourage investment in Mexico and shift auto production to the United States.

Momentum suddenly resumed after Andres Manuel Lopez Obrador won the Mexican presidential election last month and expressed support for overhauling NAFTA. The Mexican negotiators are hoping to reach an agreement this month with the United States, then bring Canada back into the negotiations.

Canada’s absence from this week’s talks raised suspicions that the United States was pursuing a divide-and-conquer strategy with its two trading partners, isolating Canada to pressure it into agreeing with whatever the U.S. and Mexico came up with.

But David MacNaughton, Canada’s ambassador in Washington, told the AP it made sense for the U.S. and Mexico to negotiate first: “There are a couple of lingering issues between the U.S. and Mexico” that need to be settled “before we can move on,” he said.

The most obvious is Trump’s push to require that autos contain more content made within the NAFTA trade bloc and specifically from countries that pay high wages (that is, not Mexico) to qualify for duty-free status under the agreement. But the two countries are whittling away at their differences.

In June, Trump imposed taxes on imported steel and aluminum, hoping in part to pressure Canada and Mexico to agree to a NAFTA rewrite that was to his liking. But the two neighbors — and other U.S. allies and trading partners — have slapped back with tariffs of their own, often aimed at U.S. farmers who supported Trump in the 2016 election. The Mexicans, for example, targeted U.S. pork and cheese.

The retaliation is beginning to take a toll. The Trump administration last week announced a $12 billion package to ease the pain on farmers.

Daniel Ujczo, a lawyer with Dickinson Wright PLLC in Columbus, Ohio, said the U.S. has a big incentive to smooth over the differences with friendly countries and get the tariffs removed. “The faster we get a deal with Mexico, the faster that relieves pressure on farm country,” he said.

The Trump administration last week pulled back from the brink of a trade war with the European Union, suspending planned tariffs on European autos while it talks with the EU about tearing down trade barriers.

As tensions with U.S. allies seem to ease, tensions with China are rising. On Wednesday, the Trump administration proposed raising planned tariffs on $200 billion in Chinese imports to 25 percent from an originally announced 10 percent. The world’s two biggest economies are sparring over what Washington says are Beijing’s predatory tactics to obtain American technology.

Deals with allies like the EU, Mexico and Canada could give the administration “some breathing room on China and signal to the world that they aren’t looking to fight with everyone,” said Christine McDaniel, senior research fellow

at George Mason University’s Mercatus Center.

“If you’re going to take China on, you’d better make sure you’ve shored up your base with your allies and made sure you kept other markets open,” said Michael Camunez, president of Monarch Global Strategies consultancy and a former U.S. Commerce Department official.

The move for a higher tariff on Chinese goods, announced Wednesday, is intended to draw China back to the negotiating table.

China’s government vowed to strike back against further U.S. actions and said “blackmailing“attempts would fail.

“China is fully prepared and will have to retaliate to defend the nation’s dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries,” China’s Ministry of Commerce said in a statement Thursday on its website. The “carrot-and-stick” tactic won’t work, it said.

Along with its pledge to fight back, China also left the door open for a resumption of negotiations. “China has consistently advocated resolving differences through dialogue,

but only on the condition that we treat each other equally and honor our words,” the ministry said.

While the duty on the additional $200 billion of Chinese goods likely won’t be imposed until after a public review ends next month, economists and business groups are already warning that tariffs will disrupt supply chains and push up prices for imported goods. The Trump administration already imposed duties on $34 billion of Chinese goods last month, which prompted immediate retaliation from China, and another $16 billion will likely follow in the coming days or weeks.

The International Monetary Fund has cited escalating trade disputes as a growing downside risk that’s threatening the strongest global economic upswing in seven years.

Ross said on Thursday that imposing U.S. tariffs on what would add up to about half of all Chinese imports, which were valued at more than $500 billion last year, won’t cause a major economic upheaval.