Increasingly isolated, angry and volatile due to ongoing investigations and key staff departures, President Donald Trump last week zig-zagged on gun control, publicly attacked his Attorney General and appeared ready to touch off an all-out trade war over steel and aluminum, which jolted markets and was opposed by many in his Administration and Republican party leaders.
With the seventh round of NAFTA negotiations underway in Mexico City, the President announced his Administration would invoke the national security provisions—Section 232—of the Trade Expansion Act of 1962 to impose tariffs of 25 per cent and 10 per cent respectively on imported steel and aluminum.
US Commerce Secretary Wilbur Ross had already issued two reports with recommendations ranging from a targeted to a blanket approach for imposing the tariffs. But it was clear that Trump’s announcement was hatched on the fly by the President, as it left unclear many key implementation details, such as what specific products would be hit by the tariffs and to which countries they would apply. Also unknown was whether allies such as Canada might be exempted as it was in 2002 when President George W. Bush placed a tariff of up to 30 per cent on steel. That earlier tariff was abandoned after a year when it was found to have cost significantly more jobs than it protected and created.
Reaction to the President’s Thursday announcement came fast and furious:
- Stock market volatility last Thursday and Friday hit the largest U.S. consumers of steel and aluminum—the automotive sector, heavy equipment and aircraft manufacturers and the construction sector.
- Stopping short of proposing retaliation, Canadian Foreign Minister Chrystia Freeland immediately released a statement calling the U.S. proposals “absolutely unacceptable,” noting that “The United States has a $2 billion surplus in steel trade with Canada. Canada buys more American steel than any other country in the world, accounting for 50% of U.S. exports,” and that “should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers.”
- As some of his strongest supporters called the tariffs “pure madness,” on Friday the President tweeted that “trade wars are good, and easy to win,” which prompted a tart response from Nebraska Sen. Ben Sasse, one of many Republican lawmakers to criticize the tariffs: “Trade wars are never won. Trade wars are lost by both sides. Kooky 18th century protectionism will jack up prices on American families—and will prompt retaliation from other countries. Make no mistake: If the President goes through with this, it will kill American jobs—that’s what every trade war ultimately does. So much losing.”
- Equally direct was Adam Posen, President of the Peterson Institution for International Economics: “This is just straight-up stupid. This is fundamentally incompetent, corrupt or misguided.”
- Wisconsin GOP Governor Scott Walker pleaded with the President to reconsider the tariffs on aluminum: “There is not a market in America that can support the demand for ultra-thin aluminum for employers here in Wisconsin and across the country.”
- The confusion continued through the weekend and into this week:
- On Saturday, after the European Union warned the U.S. of swift retaliation if the tariffs are imposed on its members, Trump said the U.S. would respond to retaliatory tariffs from the EU with a “tax” on autos.
- Speaking on the Sunday morning talk shows, White House Trade Advisor Peter Navarro hinted at a process to enable individual companies to plead their case: “There’ll be an exemption procedure for particular cases where we need to have exemptions so business can move forward.”
- On Monday morning, the President used Twitter to raise the stakes, and the uncertainty, even more: “Tariffs on steel and aluminum will only come off if new & fair NAFTA agreement is signed.”
- Also on Monday, House Speaker Paul Ryan appealed to the President not to go ahead with the tariffs in a formal statement: “We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan. The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains.”
- Speaking in Mexico City at the end of the latest round of trade talks, USTR Robert Lighthizer said that Canada and Mexico would have time to agree to a renegotiated NAFTA before being hit by the President’s steel and aluminum tariffs. Claiming that there was no linkage between NAFTA and the proposed tariffs, Lighthizer then proceeded to link them: “The president’s view was that it makes sense that if we get a successful agreement, to have them (Canada and Mexico) be excluded. It’s an incentive to get a deal.”
- The irony of the “on the fly” bargaining was not lost on GOP campaign guru Karl Rove, who told Fox Business on Tuesday that by using the tariffs as leverage in trade negotiations, Trump is undermining his argument that they are needed on national security grounds if countries file challenges at the WTO.
- In a Monday evening telephone call with the President, Prime Minister Trudeau registered his “serious concern” about the proposed tariffs, and told Trump that “the introduction of tariffs would not be helpful to reaching a deal on NAFTA.
- White House chief economic advisor Gary Cohn resigned on Tuesday after the stock markets closed over the President’s proposed steel and aluminum tariffs. Cohn’s resignation removes a voice of sanity on free trade in the Trump Administration and a key interlocutor for senior Canadian officials within the White House.
MEANWHILE, IN MEXICO CITY…
The histrionics over steel and aluminum tariffs appeared not to unduly hamper the week-long NAFTA negotiating session that closed on Monday in Mexico City, with three chapters being finalized and closed, and progress reported on several others.
So, what was accomplished in Mexico City?
- The U.S agreed to a stand-alone energy chapter, which could be completed at the next round of negotiations that are now expected in Washington in April. Sectoral annexes on chemicals and proprietary food formulas were also agreed to, and Lighthizer said that the three countries were “making substantial progress on telecommunications and technical barriers to trade.”
- The three parties all engaged on Canada’s proposals for rules of origin tabled in Montreal, which included focused tracking lists, incentives for research and development, investment and incentives to build more regional steel and aluminum content into vehicles. The talks did not extend to country-specific requirements, but USTR Lighthizer recalled his rules of origin expert to Washington early last week for Administration meetings with U.S. auto sector executives.
- Canada and Mexico also made progress in bilateral talks on two of the dispute settlement chapters. On state-to-state disputes (Chapter 20), Mexico and Canada explored suggestions on how to choose panelists and how to describe their decision-making process. They also explored a mechanism through which panel disputes could be reviewed in extraordinary circumstances. On investor-state disputes, the U.S. has said it would opt out of ISDS, so Canada and Mexico explored a bilateral investor-state dispute mechanism that might work for them.
- Canada and Mexico also separately addressed the government procurement market, given the U.S.’s continuing unwillingness to engage constructively on this issue.
- Other chapters slated to be closed soon include those on sanitary and phytosanitary measures, transparency, telecommunications and digital trade and technical barriers to trade.
In his closing remarks, Ambassador Lighthizer expressed concern that progress in the talks remains slow, with only six of the 30 potential chapters having been agreed on and closed. He also raised once more the possibility of the U.S. breaking the talks into bilaterals if the speed of the discussions did not improve. In response, Canada’s Minister Freeland said that “the math of 6/30” did not really reflect the progress that has been made, and that all parties were prepared to invest in the work to come on the harder chapters of the agreement.
While acknowledging progress, USTR Lighthizer Also warned that the three countries were running out of time to get a completed deal before the “current Congress.” The clear implication was that if the Republicans lose seats in November’s House elections, the stronger Democrats might not be friendly towards renewing NAFTA. He also noted that Congress needs a six-month notice in advance of a vote on a trade deal like NAFTA, which raises the pressure for a deal to be reached before early June.
All of this leads to the start of the next negotiating session in Washington, which is now rumoured to be Friday, April 6th. The idea would be a “sprint to the finish line” in which all sides would make a concerted effort to wind up the talks in Washington or shortly thereafter. This timing would also avoid the negotiations running into election season in all three countries, and which begins with Ontario’s provincial election on June 7th, followed by Mexico’s general election on July 1st, and fall U.S. mid-terms in November.
For all of this to come together, Ambassador Lighthizer faces another hurdle. The Administration’s current authority to fast-track approval of trade deals through an up-or-down vote under the Trade Promotion Authority expires on July 1st and he must ask for renewal from Congress by April 1st. If the steel and aluminum tariffs are still a hot issue in a month, Congress could prove to be a barrier to this critical extension.
March 8, 2018: The Honourable François-Philippe Champagne, Minister of International Trade, will hold a media availability from Santiago, Chile, where he will be attending the official signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Immediately afterward, Bruce Christie, Canada’s chief trade negotiator for the CPTPP, will hold a technical briefing. Domestic stakeholders will be consulted through the implementation phase building on input already received through the federal government consultations on the TPP. Expect some provincial governments such as Ontario and others to up the ante for some form of trade assistance for workers, industry and specific sectors impacted by the CPTPP.