Trade Wars: Revenge of Tariff Man

By Dave Adams

Say what you will about President Trump using tariffs to leverage a non-economic dispute but he got the Mexican government to agree to more forceful measures on its southern border and to consider a soft version of, “safe third country” – referring to refugee claimants seeking entry to Canada or the United States at the country’s respective land borders – for repatriation of illegal immigrants from the United States. In the spirit of World Cup: Trump 1, Mexico 0.

For a couple of weeks, the renewed tariff threat on Mexico derailed what little momentum the United States-Mexico-Canada Agreement (USMCA) was gathering in Congress. With President Trump’s crisis with Mexico temporarily at bay, attention has shifted back to the Hill. US Trade Representative (USTR) Robert Lighthizer recently testified before both the Senate Finance and House Ways and Means Committees. He pressed for approval of the deal before the August recess but Democrats poured cold water all over that notion with House Ways & Means Chairman Richard Neal (D-MA) suggesting there was no need to rush and Trade Subcommittee Chairman Earl Blumenauer (D-OR) suggesting the fall was the likely window for consideration. Like the administration, congressional Republicans are anxious to get a deal done sooner rather than later over fears that the agreement will be overtaken by the 2020 presidential campaign.

For their part Democrats continue to hold out for changes in the agreement that address their concerns over labor and environment provisions including some assurance that Americans will continue to have access to reasonably priced pharmaceuticals. In fact, Democrats recently suggested that the provisions of USMCA dealing with pharmaceutical pricing be removed from the agreement. The Trump Administration has so far refused to re-open the agreement as has Mexico and Canada. The ball is firmly in House Democrats’ court, which Lighthizer affirmed during his testimony, as they figure out what enforcement looks like short of re-negotiation. One possibility offered by Sens. Sherrod Brown (D-OH) and Ron Wyden (D-OR) would allow the US to request that Mexico inspect and verify that specific factories are complying with the labor standards in the deal. If those facilities are found in violation, the US could revoke tariff reductions for those factory’s products.

The administration has tried to increase the pressure on the House to get this deal done by sending Congress a draft statement of administrative action – setting off a 30 day clock before the administration can send up the final statement though it does not require the administration do so immediately upon expiration of the 30 days. President Obama took a similar step in 2016 with the Trans-Pacific Partnership (TPP) but ultimately never sent the final deal to Congress. 

BUT WAIT! THERE’S MORE!

The US-China trade dispute continues to simmer with little or no formal negotiations or discussions.  USTR has begun hearings on product exclusions from the next tranche of tariffs on Chinese imports but further progress between the two nations will have to wait until an expected meeting between Presidents Trump and Xi on the margins of the G-20 later this week. The administration has been downplaying expectations from such a meeting – meaning a deal is unlikely – perhaps a roadmap for further talks will emerge. In the meantime, the dispute with Huawei continues to cast a shadow on the overall talks. President Trump has hinted that relief from the entities list for Huawei and even intervention in the extradition case of Huawei’s CFO could be part of a deal. Given Huawei’s announcement regarding the loss of $30 billion in projected revenue over this year and next, look for China to press for a resolution to this issue when Trump and Xi meet in Osaka, notwithstanding Huawei’s desire to be left off the agenda.

AUTO TARIFFS: THE CLOCK IS RUNNING

In May, President Trump delayed the imposition of tariffs on imported autos and auto parts for six months giving trade negotiations with Japan and Europe a bit of breathing room. Negotiations with Japan are on hold until after elections to the upper house of Japan's bicameral legislature in July. Even after the elections, the actual scope of negotiations is still in doubt. Agriculture remains a high priority for the US but Japan has talked about focusing on “goods only.”

Discussions with the EU also appear to be on the back burner and similarly suffer from a lack of agreement on the scope of negotiations. Again, agriculture is the sticking point along with the change in leadership of the EU as a result of the elections at the end of May.

President Trump needs agriculture to be part of both the Japan and EU deals. A look at Perdue University’s Agriculture Economy Barometer shows the lowest reading in agricultural producer sentiment since October 2016 driven by weakening perceptions of both current and future economic conditions. The ongoing trade wars and torrential rains and flooding in the heartland have all contributed to this outlook. Bottom line: the president needs a win for the agriculture sector headed into 2020.

SO WHAT? AND WHEN?

The immediate impact of all this trade churn will be on US-China relations with the president indicating that the prospect for additional tariffs on Chinese imports could be delayed or the level of tariffs modified depending on the outcome of his G-20 meeting with President Xi. Down the road but within eyesight, USMCA looks to be on a path for consideration in Congress this fall.

With so much hanging on the atmospherics of a single meeting, organizations will need to stay in close contact with key decision-makers in both the administration and on Capitol Hill as Washington sprints towards the August recess. Cogent’s team of seasoned professionals are ready to provide real-time guidance to organizations who are impacted by the roller coaster nature of the ongoing trade talks.

 

David Adams brings to Cogent clients an invaluable combination of legislative and foreign policy expertise. David served as Assistant Secretary of State for Legislative Affairs and as Deputy Assistant Secretary for House Affairs to Secretary of State Hillary Clinton. He also has a distinguished record as staff director for the House Foreign Affairs Subcommittee on Middle East and South Asia and as professional staff for the Committee on International Relations. For David's complete bio, click here.