Trade under Trump: Emerging Plans

During the U.S. presidential election campaign, Donald Trump threated to withdraw the United States from the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP) and perhaps even the World Trade Organization (WTO), and to impose punitive tariffs: 45% on imports from China and 35% on Mexican imports. With the election over, it is time to look beyond the campaign rhetoric to the President-elect’s plans for trade. He has established a trade transition team, led by Dan DiMicco, the former CEO of Nucor Corporation, a leading U.S. steel producer. The transition team is beginning to flesh out trade policies for the new Administration, focusing on the first 100 to 200 days. This post begins a consideration of the plans emerging for trade in three areas: NAFTA, TPP and China.

NAFTA: The incoming President’s team has indicated he will inform Canada and Mexico, at the beginning of his term, that he wants to renegotiate NAFTA. The precise changes he will seek are not clear. But, as NAFTA was one of the first U.S. free trade agreements (FTAs) — following a much less comprehensive FTA with Israel and replacing the U.S.-Canada FTA, it is outdated and thus presents opportunities for improvements.

Those improvements could draw from the TPP, which incorporates the most up-to-date commitments in several areas, such as digital trade and state-owned enterprises. But, the new President may also seek to reinstate tariffs on Canada and Mexico in select sectors, such as autos, in an attempt to bring manufacturing facilities back to the U.S. Re-opening NAFTA would not likely be one-sided: Canada and Mexico could be expected to bring their own requests to the negotiating table.

While the incoming President intends to enter negotiations with the NAFTA partners, he has not abandoned the possibility of withdrawing from the Agreement. When he assumes office, he plans to call for a study of the economic impact of withdrawing from NAFTA, and to consider withdrawal six months into his term. As a consequence, the withdrawal issue will loom over the negotiations.

The President has the authority to withdraw from NAFTA without further authorization from Congress. He could do so under Article 2205 with a simple written notice to Canada and Mexico, and the withdrawal would become effective six months later. On the domestic side, Congress would have to repeal the NAFTA implementing legislation, which it enacted in 1993 to bring NAFTA into force for the U.S. In addition, federal agencies would likely have to revise federal regulations to unwind implementation of NAFTA.

TPP: Throughout the campaign, the President-elect expressed strong opposition to the TPP and that has not changed post-election. His initial trade plans include withdrawing from the TPP. But, he is unlikely to have to take such action since the Congress has not ratified it and its leaders have stated that they have no intention of taking it up during their lame-duck session.

What remains to be seen is whether Trump’s opposition to the TPP could lead to renegotiation at a later date. The TPP would not be the first agreement to be declared dead when a new administration assumes office, only to be resurrected with some improvements. During the 2008 campaign, President Obama had opposed the U.S. trade agreement with South Korea, which was signed by President George W. Bush. But after the renegotiation of several elements of the Korea FTA, President Obama signed it. The same thing had happened earlier – with NAFTA. President Bill Clinton had opposed the Agreement negotiated by President H.W. Bush, but supported it after side agreements on labor and environment were negotiated.

China: The incoming President has backed off threats to slap 45% tariffs on Chinese imports. Instead, according to his transition team, he will propose new currency manipulation legislation and by his 100th day in office consider whether to name China as a currency manipulator. It is unclear what U.S. actions might follow such a designation. But, unilateral trade action could well prompt retaliation by China.

The President-elect has also promised to use every lawful presidential power to pursue unfair Chinese trade practices. That would fit into a broader plan to direct the trade agencies to identify any violation of U.S. law and international agreements and pursue cases under domestic law, as well as in the WTO.

Subsequent posts will take up various elements of the new President’s trade agenda.

Jean Heilman Grier

November 29, 2016

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TPP: U.S. International Trade Commission Report