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Trump says USMCA trade deal with Mexico and Canada proves tough talk and tariffs work

October 1, 2018 at 4:56 PM

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President Trump introduced the new USMCA trade deal with Mexico and Canada on Oct. 1, to replace NAFTA. (Reuters)

President Trump said Monday that his successful use of economic threats and other hardball tactics to pressure Canada and Mexico into major trade concessions would serve as a model for future negotiations, putting other world leaders on notice.

In a news conference, Trump said he would try a similar approach with the European Union, China, Japan and potentially Brazil and India, convinced that foreign leaders take the United States seriously only if the White House threatens to upend economic ties.

“We’re totally prepared to do that if they don’t negotiate,” Trump said, raising the prospect of new penalties if countries don’t remove trade restrictions or allow more U.S. investment.

Trying to head off these threats, the E.U. and Japan have begun discussions on how to address Trump’s concerns, and the president said similar conversations are underway with India.

Related: [U.S., Canada and Mexico just reached a sweeping new NAFTA deal. Here’s what’s in it.]

Trump said it was this pressure particularly the threat to use tariffs as a negotiating weaponthat forced Canadian Prime Minister Justin Trudeau to agree to changes Sunday night to the North American Free Trade Agreement.

The deal must still win approval in Congress, a political debate that isn’t expected until next year. There were already signs the new agreement had scrambled traditional coalitions, with some liberals appearing to side with Trump’s approach and some Republicans fearful that this could mean the end of free trade. But White House officials were jubilant, believing Trump successfully used his business acumen to force Canada to agree to something it had long resisted.

“He is very serious about the fact that if he’s not able to achieve negotiated outcomes, he’s not going to shy away from unilateral outcomes,” Jared Kushner, Trump’s son-in-law and a top White House official who was intimately involved in the talks, told reporters at a briefing.

The deal lifted stock markets in all three countries, and some executives exhaled after worries of a protracted trade war but Trudeau faced criticism from within his own borders.

Ontario Premier Doug Ford said Trudeau’s decision to scale back government support could put Canadian dairy farmers on the brink.

“If our farmers are being abandoned because of one-sided concessions from the federal government, they must take immediate action to support the families and livelihoods that are now at risk,” Ford wrote on Twitter.

Trudeau’s shift, after months of resistance, came after Trump shocked leaders in Ottawa — and much of the world —by imposing tariffs on steel and aluminum imports from the United States’ northern neighbor. The tariffs outraged Canadian leaders, but they agreed to the White House’s demands after Trump began mobilizing plans to unleash what he referred to as the “mother lode”: penalties on all automobile imports from Canada.

Canadian business leaders believe that if Trump had followed through on his threats, he could have tipped their country into a severe recession.

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After reaching a trade deal with Mexico and Canada, President Trump had kinder words for Canadian Prime Minister Justin Trudeau on Oct. 1. (Reuters)

“You’re dealing with the thousand-pound gorilla,” said David Baskin, president of Baskin Wealth Management in Toronto. “The fact is that the American economy is 10 times bigger than the Canadian economy. The U.S. can damage Canada without hurting themselves very badly . . . so we’re always in the inferior position, bargaining with the U.S.”

Trump conceded that his plan would have caused severe economic distress if Canada didn’t acquiesce.

“It would have been nasty, and it wouldn’t have been nice,” he said.

Trudeau said the deal marked a victory for Canada, removing uncertainty that had clouded his country’s relationship with its leading economic partner.

“Free and fair trade in North America, a trading zone that accounts for more than a quarter of the world’s economy with 7 percent of its population, is in a much more stable place than it was yesterday,” he said. “We now have a path forward.”

Related: [USMCA: Who are the winners and losers of the ‘new NAFTA’?]

The agreement represented what may be the last major accomplishment of Mexico’s outgoing president, Enrique Peña Nieto, who leaves office in December. Since Trump’s presidential campaign began, Peña Nieto’s government has been playing defense against insulting rhetoric, calls for a border wall and threats of significant losses in the trading relationship with the United States. Reaching a new trade agreement was one of the highest priorities of Peña Nieto’s government.

“The modernization of the trade agreement” among the three countries “concludes 13 months of negotiations and achieves what we proposed at the beginning: a win-win-win agreement,” Peña Nieto wrote on Twitter.

Economy Secretary Ildefonso Guajardo, one of the leaders of Mexico’s negotiating team, told a Mexican television program that it was likely that the three countries would sign the agreement in late November at the Group of 20 meeting in Buenos Aires.

The deal, which leaders are calling the United States-Mexico-Canada Agreement, would impose stricter requirements for automobile imports, labor and environmental protection, as well as new parameters for financial services, the pharmaceutical industry and e-commerce. The goal of the agreement is to keep trade barriers low between the United States, Canada and Mexico but also to make it harder for other countries to lure U.S. workers and companies overseas, White House officials said.

It marked the first major validation of Trump’s take-it-or-leave-it negotiating style on trade, and business leaders, lawmakers and union officials were poring over the nearly 2,000-page document Monday .

Before the agreement can formally replace NAFTA, it must gain approval in Congress next year, something Trump said could be a challenge because Democrats could try to refuse him any sort of victory.

“In theory, there should be no trouble, but anything you submit to Congress is trouble, no matter what,” the president said. “They’ll say, ‘Trump likes it, and therefore we won’t approve it.’ ”

Trump has few allies on the issue among Capitol Hill Republicans, most of whom support free trade and have objected to the president’s use of tariffs and frequent threats to tear up trade deals with allies. These lawmakers had winced at Trump’s threats to withdraw from NAFTA and had been strongly opposed to the idea of dropping Canada and doing a deal with Mexico alone.

Some congressional GOP leaders applauded the deal, saying it validated Trump’s tough approach.

“While many in Washington claimed it could not be done, President Trump worked tirelessly to bring Canada to the table and negotiate a new trade deal that is better for American workers and consumers,” said Rep. Steve Scalise (R-La.), the House majority whip.

But others sounded notes of caution, saying that the deal does not lift the steel and aluminum tariffs they say are harming agricultural and manufacturing industries in their states.

Sen. Patrick J. Toomey (R-Pa.), a prominent pro-trade voice in Congress, cited concerns including weaker protections for U.S. investors and new quotas on auto imports.

Related: [Opinion: Trump makes minor trade deal, declares world-historic victory]

“In the coming days, I will closely review the text of this proposal to see whether the proposed changes, on balance, enhance or weaken the enormous economic benefit we have derived from the original agreement,” Toomey said. “I also plan to work closely with my colleagues to explore how we may correct some of the agreement’s flaws through the required implementing legislation.”

Sen. Sherrod Brown (D-Ohio), asked whether the outcome validates Trump’s approach, didn’t give him credit, instead saying: “I think President Trump has hired a really good negotiator in Bob Lighthizer and I think the Canadians and Mexicans had reason to want to modernize this agreement for their own reasons.”

U.S. Trade Representative Robert E. Lighthizer told reporters he would be open to discussions with lawmakers from both parties in the coming monthsand doing whatever he could to address their concerns. The White House approach would not be “our way or the highway,” he said, but lawmakers ultimately would have to vote on the precise agreement reached between the three countries.

Democrats reacted carefully, saying they would have to review the proposal to ensure it protects U.S. workers.

Congressional Democrats clashed with President Barack Obama over his pursuit of trade deals, and it’s an issue where they are more philosophically aligned with Trump.

“As someone who voted against NAFTA and opposed it for many years, I knew it needed fixing,” said Senate Majority Leader Charles E. Schumer (D-N.Y.). “The president deserves praise for taking large steps to improve it. However, any final agreement must be judged on how it benefits and protects middle-class families and the working people in our country.”

Trump has said that NAFTA is one of several trade agreements that put American workers at a disadvantage, allowing companies to move jobs and factories to Mexico and China and out of the Midwest. This position resonated strongly with many voters and helped him win Pennsylvania, Michigan, Ohio and Wisconsin, states that proved vital to his 2016 election.

The White House is involved in other negotiations, though none so far are as consuming as the NAFTA talks. Trump dispatched a number of top advisers to play integral roles in the discussion, particularly Lighthizer and Kushner, who was at times tasked with relationship-building and establishing trust.

Business executives, even some who raised concerns about Trump’s tactics, conceded that his stern negotiations forced the other countries to move quickly, even as they faced their own domestic politics and pressures.

“His style in negotiating got a rework of the biggest trade agreement in the world in 12 months, when we are used to seeing these things go on for seven years,” said Flavio Volpe, president of the Automotive Parts Manufacturer’s Association in Canada, a group that represents manufacturers.

Trump on Monday said several times that he plans to use similar tactics to try to extract major changes from China, which he has accused of stealing U.S. intellectual property and hurting American workers. He said that China’s economy is struggling while the United States’ economy is thriving and that he would scale back penalties only if China accedes to his demands.

“China wants to talk very badly,” Trump said. “And I said, ‘Frankly, it’s too early to talk.’ Can’t talk now, because they’re not ready, because they’ve been ripping us for so many years. It doesn’t happen that quickly. And if politically, people force it too quickly, you’re not going to make the right deal for our workers and for our country.”

Experts expressed skepticism that Trump could extend the model he used with Canada to China, as leaders in Beijing have so far shown a willingness to meet each of Trump’s threats with penalties of their own.

“I’m just very skeptical that the Chinese are going to cry uncle and give us everything that we want,” said Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies.

But Lighthizer said other leaders should take away two important lessons: Trump was always willing to terminate discussions, if necessary, but his bigger aim was to come to a deal.

“The message it sends to the whole world is that if we can get good agreements, the president will enter into them,” he said.

David J. Lynch, Joshua Partlow and Selena Ross contributed to this report.


Damian Paletta is White House economic policy reporter for The Washington Post. Before joining The Post, he covered the White House for the Wall Street Journal.

Erica Werner has worked at The Washington Post since 2017, covering Congress with a focus on economic policy. Previously, she worked at the Associated Press for more than 17 years.

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