Trump Trashes His Own Trade Pact
S E E D E D C O N T E N T
“The boss doesn’t like free trade. Zero tariffs are off the table.” That’s the message rumored to have been delivered to members of the Mexican business community last week by U.S. Trade Representative Jamieson Greer when he visited Mexico City. I asked the USTR press office if it wished to comment. It declined.
Reuters reported that it too heard that the U.S. president’s trade emissary expressed hostility toward free commerce while in the Mexican capital. The news outlet said that, according to “four industry sources,” Mr. Greer “told Mexico’s auto and steel industries they should not expect the renegotiation of the US-Mexico-Canada Agreement to remove President Donald Trump ’s tariffs on their sectors.”
It isn’t hard to believe either assertion. Mr. Trump negotiated the USMCA in his first term and signed it into law in 2020 to replace the 1994 North American Free Trade Agreement. It promises U.S. market access to products from Mexico and Canada providing they meet regional-content requirements. But now he’s having regrets. Since he can’t take it back, he’s decided to cheat. This is doing reputational damage to the U.S. abroad. Worse, it’s undermining the American economy.
The USMCA is due for a six-year “joint review” this summer—what Reuters called a “renegotiation.” The president seems to want to blow the whole thing up. But that isn’t so simple. The trade pact says that if the three parties don’t sign off on an extension during this review, the existing deal remains in effect and the parties try again next year. They have 10 years of annual reviews to come to consensus. If no settlement is reached by 2036, the agreement will be terminated.
True, every year that passes without an extension will increase investor uncertainty. The longer things remain unsettled, the greater the risk that North America underperforms its potential in a meaningful way. But missing the deadline this year isn’t a crisis for the USMCA, and if the U.S. withdraws from the agreement, it will lose duty-free access to its two largest markets.
Continental trade reached some $1.8 trillion last year, and the survival of the agreement is important for American investors, workers, businesses, farmers and ranchers. But it’s tough on Tariff Man. He doesn’t like the exchange of goods and services without Uncle Sam taking a cut. The thought of another decade of it is apparently too much to bear.
Last year Mr. Trump used Section 232 of the Trade Expansion Act of 1962 to put 50% tariffs on steel and aluminum from Mexico and Canada. Manufactured goods like appliances, other consumer durables and small recreational vehicles also got hit with a new 50% tariff, but only on their non-U.S. metals content. The 232 executive power to tax is supposed to be limited to the protection of national security. But with no one to stop him, the president has gone hog wild.
The tariffs have been a gut punch to the integrated North American economy. Last fall, during the public-comment period ahead of the USMCA review, scores of American companies and industry groups clamored for relief. On April 2 the president responded to them by increasing the pain.
Mr. Trump’s new modified 232 tariffs, effective April 6, subject manufactured goods from Canada and Mexico that are “substantially made” of non-U.S. steel, aluminum, or copper to a 25% tariff on the entire value of the product, even if it is USMCA compliant. Under USMCA, autos with 75% regional content are duty-free. But the president has waved his arm and pronounced that only the made-in-America portion of a car can cross the border without a tariff. The rest of the vehicle is hit with a 25% duty.
Mr. Trump’s claim that Mexican- and Canadian-made refrigerators, washing machines, baby strollers, snowmobiles and golf carts are a threat to U.S. national security has generated a lot of good jokes. But the 232 tariffs are no laughing matter for North American businesses, and they’re a clear abuse of the law. Gutless Republicans are too afraid of the president to object. The Democrats, long opponents of trade and sops for Big Labor, are happy to see him working for their traditional supporters.
Mr. Trump’s new modified 232 tariffs, effective April 6, subject manufactured goods from Canada and Mexico that are “substantially made” of non-U.S. steel, aluminum, or copper to a 25% tariff on the entire value of the product, even if it is USMCA compliant. Under USMCA, autos with 75% regional content are duty-free. But the president has waved his arm and pronounced that only the made-in-America portion of a car can cross the border without a tariff. The rest of the vehicle is hit with a 25% duty.
The goal is to make final products from Mexico and Canada less affordable for U.S. consumers. But in an “affordability” crisis, that sounds like a bad political strategy. If Mexico City and Ottawa retaliate as they have in the past, they’ll probably close markets to American farm and liquor exports that come from Trump country. And because a web of supply chains now criss-cross the continent, with the U.S. producing most high-tech components that go into final products from north or south of the border, the 232 tariffs are bound to inflict wounds on lots of American companies. One wonders whose side Mr. Trump is on.
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"One wonders whose side Mr. Trump is on."
Only his own.