Trump tactics may be undercutting trade deals
WASHINGTON – President Trump is embracing a new tactic as he tries to rewrite the rules of global trade: Don’t believe a final deal is truly final.
Trump, who has called deal-making his “art form,” has used his unpredictability as a source of leverage in discussions with Europe, Canada, Mexico, Japan and elsewhere. He has dangled the possibility of lifting U.S. metal tariffs while threatening to add new tariffs on automobiles at any time. He has repeatedly agreed to new trade terms with foreign partners, then talked about undoing those deals to achieve additional goals.
Trump has argued that this aggressive and unpredictable negotiating style allows him to extract greater economic concessions than past administrations – and he may be right, at least in the short run. But his approach is causing concern among
business groups and foreign officials, who say the uncertainty Trump loves to sow could undermine the role the U.S. has traditionally played in setting and stabilizing the global rules of trade, hampering economic growth in the process.
His administration is working on a slew of trade deals, including agreements with South Korea, Canada and Mexico and discussions with China, Europe and Japan. On Monday, the European Union approved a mandate giving the bloc the authority to negotiate a limited trade agreement with the United States. And Japanese officials met with their U.S. counterparts on Monday in Washington for preliminary trade talks.
But constantly moving the goal posts comes at a cost. Trade experts say the president appears to be encouraging some partners to drag their feet in dealings with the United States or find other trading partners to diversify away from the relationship. It has also created uncertainty for companies, which could negate the benefits of the trade deals Trump strikes.
“This administration’s approach to trade is bully, bully, bully,” said Mary Lovely, a senior fellow at the Peterson Institute for International Economics. “What will be the ramifications in the future? We really don’t know. We need cooperation on so many things.”
Canada and Mexico have been forced to repeatedly scramble as a result of Trump’s tactics. After months of painful negotiations, the United States reached a revised North American Free Trade Agreement with Canada and Mexico last year. Trump in November hailed the new United States-Mexico-Canada Agreement as “probably the largest trade deal ever made” and called on Congress to immediately ratify the pact.
He has since undercut his own agreements, refusing to lift U.S. tariffs on steel and aluminum from Canada and Mexico and, more recently, threatening to override the new USMCA by taxing imports of cars and car parts from Mexico. The United States had signed an agreement with both Canada and Mexico as part of the deal that would immediately prevent the U.S. from taxing auto imports, but Trump has since threatened to scrap that.
On April 5, the same day that Trump’s negotiators were meeting in Washington with their Chinese counterparts to haggle over their trade deal, Trump threatened to put a 25% tariff on Mexican cars “if for any reason Mexico stops apprehending and bringing the illegals back to where they came from.”
“This will supersede USMCA,” the president wrote.
It is not clear that the president, who has repeatedly threatened auto tariffs on trading partners, would follow through with his threat. If he does, Canada and Mexico could reasonably argue that all of the agreements reached in the USMCA are void, resulting in the breakup of a trade pact, which is a critical agreement for businesses across North America.
“Because he is so unpredictable, you are not sure he’ll stick to anything,” said Maryscott Greenwood, chief executive of the Canadian American Business Council.
Last week, the International Monetary Fund cited global trade uncertainty, including Trump’s trade wars, as it slashed its projections for global growth. And in a survey by the Business Roundtable last September, nearly two-thirds of responding chief executives said recent tariffs and trade policy uncertainty would have a negative effect on investment decisions over the next six months.
Jesus Seade Kuri, undersecretary for North America at the Mexican foreign ministry, was in Washington earlier this month to meet with legislators and lobby for passage of the NAFTA replacement. He told reporters at a news conference that Mexico did not intend to mix discussions of trade with migration and avoided comment on the auto tariff threat.
But in an interview with a Mexican radio station earlier this month, Seade laughed off the threat of auto tariffs. “That is being talked about,” he said, chuckling. “The art of the threat.”
That threat also hangs over Europe, South Korea and Japan, all major sources of imported automobiles for American consumers. The potential for U.S. car tariffs has brought foreign officials to the negotiating table, with South Korea signing an updated trade deal last year, and Europe and Japan just now beginning negotiations. But those talks may be aimed more at receiving temporary protection from Trump’s auto tariffs than breaking new trade ground.
The president is required to decide whether to impose auto tariffs by May 18, but he has the option to exclude countries if they are currently in negotiations with the United States. For some foreign officials, the prudent choice has been to enter into limited negotiations with the United States, while hoping that will forestall any levies.
The European Union gave final approval Monday for a formal mandate to carry out trade negotiations with the United States but it was not without controversy. France and Belgium both opposed the move, an unusual step given such mandates are traditionally approved unanimously.
Some foreign leaders have determined the best approach to dealing with Trump is to draw out negotiations for as long as possible, potentially waiting out Trump’s presidency.
Last September, the administration of Prime Minister Shinzo Abe agreed to enter into bilateral trade talks with the United States. But those talks have been delayed as the Trump administration battled with China and other nations. For Japan, that has been a welcome distraction.
“Yes, the guy is unpredictable, but I think if there are other issues occupying his attention, that means less chance that he would turn against Japan,” said Takuji Okubo, managing director and chief economist at Japan Macro Advisors.
Chinese negotiators have also tried to buy time and hedge against Trump’s changing whims. Beijing has been hesitant to commit to a summit meeting with the United States until all of the details of the wide-ranging agreement they are negotiating with the United States are ironed out. They are wary that Trump will decide at the last minute that the deal isn’t good enough and send President Xi Jinping away empty-handed, as Trump did when he met North Korean leader Kim Jong Un in Hanoi in February.
President Trump signs USMCA with Mexico’s Enrique Peña Nieto.