Trump starts to see sense on trade policy

The Japanese government is wary that the United States will impose a hard set of demands in bilateral negotiations over a trade agreement on goods (TAG), using the same tactics it employed in the latest NAFTA renegotiations.

As he proudly unveiled his new trade deal with Canada this week, President Donald Trump heralded it as a “great victory” for American agriculture, offering far more access to this country’s dairy market.

It replaces the 1994 North American Free Trade Agreement (NAFTA), which had been called “perhaps the worst trade deal ever made” by US President Donald Trump.

One analysis from the conservative Peterson Institute for International Economics warned, however, that the proposed rules of origin could raise costs for North American automakers to the point that they will shift production out of the continent entirely and build cars closer to the growing markets of India and China.

Trudeau said that trade diversification is still an “extremely important part of growing the Canadian economy” and he stressed that his government is going to “continue to engage in increasing our trade footprint”.

Derek Scissors, a China scholar at the American Enterprise Institute in Washington, said the provision gave the Trump administration an effective veto over any China trade deal by Canada or Mexico.

Mexico and Canada will also get protections if the USA goes through with plans to impose tariffs on vehicles and auto parts.

“New deal, with a new name, but aside from dairy access and some bells and whistles, hardly a major rewrite that warranted so much wasted time over a 13-month long period of negotiations”, David Rosenberg, chief economist at Toronto-based Gluskin Sheff, said in a note sent out to clients.

One final note of caution in all this is that the agreement hasn’t yet been ratified by either the US or Mexican congresses, or the Canadian Parliament.

Some analysts saw this trade agreement as a potential sign of the Trump administration’s willingness to make trade deals, though prospects for an agreement with China aren’t likely to be changed by this news. “So if you comply with the rules of origin, there’s no way you are subject to 232 tariffs”, Ujczo said. In return, the United States will allow more Canadian dairy, peanuts, and peanut products to come to America.

Critics say the clause impedes Canada’s freedom to negotiate any future bilateral-trade deal with China – something Ottawa has shown interest in doing – because it may effectively give the United States a seat at the table, if not an implicit veto over a Canada-China free-trade pact. “He’s a professional. I’m a professional”, Trump said, calling it a “fair deal”. For instance, the big win for the United States is that Canada has slightly opened its market to USA dairy farmers. “Second, the pricing system allowed for Canada to be competitive to export their excess skim milk powder, taking away market share from the U.S”. “Moving forward, it is critical that additional steps be taken regarding the recent tariff escalation as we work towards bringing those down as quickly as possible”.

Canada had resisted American moves to remove the provision, keen to be able to challenge United States trade penalties. The president, never known for understatement, said the new deal would “transform North America back into a manufacturing powerhouse”.

“The bar for supporting a new NAFTA will be high”, Rep. Richard Neal, the ranking member on the House Ways and Means Committee, told reporters Monday. Before addressing the media, Trump spoke over phone with the leaders of Mexico and Canada.

Canada’s loonie is also way up from where it was recently, with the Mexican peso also trading at a higher value too because of the new deal.

The deal does not, however, address the removal of the steel and aluminum tariffs Trump slapped on Canada last spring or the softwood lumber tariffs imposed in 2017.