Trump's trade clock is ticking

by Robbin Johnson
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Trump's trade clock is ticking, NAFTA
Re-negotiation of NAFTA has its own legal, political and substantive challenges.
 

WASHINGTON — While most media eyes are on the health care debate, there are some trade clocks ticking that could have far-reaching implications for U.S. agriculture. The more visible one is President Donald Trump’s plan — announced in May — to re-negotiate the North American Free Trade Agreement (NAFTA). The other — less visible but fraught with uncertainties — are Section 232 “national security” investigations into steel and aluminum imports.

Many trade watchers were relieved when President Trump decided to “re-negotiate” NAFTA rather than to leave the agreement. Re-negotiation, however, has its own legal, political and substantive challenges. On the legal front, the Trump administration cannot begin negotiations until it has completed required consultations with Congress, which come in mid-August. At the other end of the timeline, the president’s “fast-track” trade-negotiating authority expires on July 1, 2018. If it is not extended by Congress, any trade deals considered after that date are vulnerable to congressional amendment, which historically has been tantamount to ending negotiations.

The third time element is the 180 days Congress has to consider a trade deal after it is reported to Congress by President Trump before he can sign the agreement. Putting the two consultation timelines together, the Trump administration only has from mid-August until the end of 2017 to conclude a re-negotiation that could be approved under existing law.

Extension a possibility


Of course, President Trump could seek an extension in his trade-negotiating authority past July 1, 2018. Then, however, negotiators start running into political obstacles. Here at home, mid-term electioneering would start shifting into high gear in the second half of 2018, never a good time to present a trade treaty for ratification. More problematic, Mexico elects a new president on July 1, 2018. One of the candidates — Andres Manuel Lopez Obrador — has his own populist roots. In any case, incoming leaders seldom want to rubber-stamp a previous administration’s work. Pushing a start to negotiations into the latter half of 2018 begins running up against political risks in Canada, which could hold elections in October 2019. The “window of opportunity” for concluding a successful NAFTA re-negotiation, in other words, is a tight and elusive one.

All of this precedes the substantive hurdles negotiators face. U.S. agriculture has complained about lack of market access to Canada’s “supply managed” dairy and poultry sectors. But little has occurred to change prospects there. The auto elements of NAFTA call out for a new look at “rules of origin” as car manufacturing practices continue to evolve. Looming even larger are the tremendous changes that have occurred in North America’s energy sector. As a consequence of the shale revolution, U.S. energy trade with Mexico has swung from a $20 billion deficit as recently as 2011 to more than a $10 billion surplus in 2016.

Moreover, the NAFTA region as a whole stands to be energy independent by 2020, making preservation of an integrated and coherent market ever more valuable, for industry and agriculture alike. Mexico’s growing imports of natural gas from the United States also have buoyed prices for the expanding U.S. natural gas industry. This fundamental shift in energy security should not be lost as negotiators wrestle with product-specific grievances.

Section 232


The other looming trade issue involves Section 232 investigations launched in late April into steel and aluminum imports. Section 232 of the Trade Expansion Act of 1962 authorizes the United States to limit imports that threaten “national security.” This provision — and similar ones in other countries — is essentially undisciplined by World Trade Organization rules, but national security complaints have a long history of self-restraint. Only 10 cases have been brought, and all have been settled before a final ruling by the W.T.O. or its predecessor organization, the General Agreement on Tariffs and Trade (GATT). U.S. use of its Section 232 has been more frequent — 26 times — but also has led to few actual import limits.

The Trump administration’s purposes in using Section 232 are far from clear. There is no doubt that excess capacity in the steel and aluminum industries globally — much of it in China — weighs down on prices. But Section 232 import protections are unlikely to get at this fundamental cause. The U.S. steel industry already is sheltered by around 200 antidumping and countervailing duties, many on Chinese products. And Canada, not China, supplies the lion’s share — nearly half — of America’s aluminum imports. It also is clear that the risks to U.S. defense interests — not to mention the interests of steel and aluminum value-added users in the domestic market — could be addressed through other, less blunt tools.

Many hope that the Trump campaign rhetoric on NAFTA — ”the worst trade deal ever” — and the administration’s decision to apply Section 232 investigations to core industries were meant to get attention, not to initiate a new protectionism. So far, the actions taken could fit either scenario.

The clock is ticking toward some definitive decision points. Processes around these issues include opportunities for public input. One can expect that domestic interests hurt by imports will speak up. It is important for agricultural export interests to ensure that their voices are heard with those of others seeking to keep trade channels open.

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