After 22 years of lotus-eating reverie under NAFTA, North American supporters of free trade are now being terrorized by U.S. President Donald Trump and his campaign of tariff-driven protectionist mayhem. Media coverage of Trump’s trade war is focused on China, but Mexico is taking some lumps in this affair as well. The latest moves and counter-moves are taking place against a backdrop of the struggle to push the renegotiated NAFTA free trade agreement forward into law as the U.S. Mexico Canada Agreement, or USMCA. Here are some comments on the various moving parts at this juncture.
In March 2018, President Trump signed orders imposing import tariffs of 10% on aluminum and 25% on steel. Mexico originally was exempted from the tariffs but this exemption was removed in June 2018, subjecting imports of these products from Mexico to the tariffs. Mexico retaliated by imposing its own tariffs ranging from 10% to 25% on imports of certain U.S. products in categories including steel, pork, apples, potatoes, cheese, cranberries and whiskey. U.S. exporters of pork, potatoes, apples and other affected products to Mexico took a hit as their sales to Mexico declined at a time when conditions outside the tariff issue supported growth. The U.S. government removed the tariffs on Mexican and Canadian steel and aluminum May 17, 2019 however, and in response to this Mexico removed its retaliatory import tariffs on May 20. Supporters of the USMCA hailed the removal of the tariffs on both sides as the elimination of a significant hurdle in the path toward approval of the new trade deal in all three countries.
At the same time, The United States and Mexico are embroiled in a dispute regarding Mexican tomato exports to the U.S. The U.S. government recently imposed a 17.5% compensatory quota on Mexican tomatoes, and the Mexican tomato growers association has filed suit in a U.S. court to block the quota. The Mexican tomato growers presented a new agreement proposal to the U.S. Department of Commerce in late May, but the dispute is not yet resolved and the possibility remains that Mexico may opt to impose some retaliatory measure in response to the U.S. quota.
Regarding the USMCA, the new North American trade pact is mentioned frequently in the media but it is not always easy to keep track of where things stand. To summarize, the NAFTA-replacing agreement between the USA, Mexico and Canada has been negotiated and signed but not yet ratified by the three countries’ legislatures. As a result, the long-standing NAFTA pact currently remains in effect. This means that exporting from the United States and Canada to Mexico is generally duty-free and facilitated by the cooperation frameworks of the NAFTA agreement as it has been for the past 25 years. The continuation of NAFTA is not a given, however, as President Trump has repeatedly threatened to pull the U.S. out of the agreement unilaterally for one reason or another.
The USMCA appears to have a reasonably clear path to ratification in Canada and Mexico, however its fate is less clear in the United States. Republican President Trump has expressed his desire to submit the pact to the U.S. Congress for approval, however the Democratic Speaker of the House of Representatives, Nancy Pelosi, has been unwilling to commit to supporting the agreement. Pelosi and other Democrats argue that the current USMCA text does not provide sufficient safeguards for Mexican workers, putting U.S. industry at a competitive disadvantage. Mexico’s Senate approved a significant labor reform at the end of April, however, strengthening the collective bargaining process and the free election of union leaders and creating new councils to resolve labor disputes. USMCA supporters hope the improved framework will appease Congressional critics in the U.S., but House Democrats respond that they still want improved mechanisms for enforcement of labor protections before they will accept the pact. At the same time, the poisonously partisan environment in Washington is working against the expeditious ratification of the USMCA. With a bitter campaign for the 2020 U.S. presidential election already underway, Democrats are presumably loath to hand Mr. Trump a high-profile, media-friendly legislative victory. Canada and Mexico favor approving the current USMCA text, and resist proposals to begin rewriting passages, for example on labor rights enforcement. Without signals from House Speaker Pelosi that the Democrats are willing to approve the USMCA as is, President Trump is hesitant to submit the pact for approval, since the Democratic majority in the House could either vote against the deal or possibly even refuse to hold the vote. Such an outcome would eat up another two months, after which the president would be required to re-submit the accord for approval, again possibly with no guarantee of success. As a result, the future of the USMCA remains unclear, with new chess pieces being moved and updated reading of tea leaves practically on a daily basis in the United States.
For what it’s worth, our position is clear. We support ratification of the USMCA to ensure free trade in North America. We would like Mexico to be able to continue exporting tomatoes to the United States in an unfettered fashion, but we’re not going to beg for that one, we’ll see what they can work out. We understand that the U.S. government is seeking the most favorable deals possible in its trade with other countries, as all countries do. We feel though that the United States has done very well for itself economically over the past two centuries so we confess we are not moved to tears by their plight. We’d just like to get this whole USMCA topic resolved so those of us in the North American trade game can get back to building relationships and investing in the future without having to worry about the whole house of cards tumbling down.