Trump did not directly address the North American Free Trade Agreement on Monday as he had promised during the election. However, he repeated his threat to punish U.S. companies that build factories overseas and ship products back home — a charge he has primarily leveled at automakers with operations in Mexico. And his hard-line opening stance could portend a contentious renegotiation of the 22-year-old deal with Mexico and Canada that Trump’s senior advisers have called a top priority for the new administration.
“This abrupt action so early in the Trump administration puts the world on notice that all of America's traditional economic and political alliances are now open to reassessment and renegotiation,” said Eswar Prasad, trade policy professor at Cornell University. “This could have an adverse long-run impact on the ability of the U.S. to maintain its influence and leadership in world economic and political affairs.”
The TPP was one of former president Barack Obama’s signature efforts, part of a broader strategy to increase American clout in Asia and provide a check on China’s economic and military ambitions. Several of the executives Trump met with Monday initially had supported the agreement, while the chief architect of the administration’s trade policy, Commerce secretary nominee Wilbur Ross, was also once a booster for the deal.
But ending TPP was one of the clarion calls of Trump’s campaign, part of a global backlash against the drive toward greater internationalization that has defined the world economy since the end of World War II. British Prime Minister Theresa May, who is in the midst of navigating her country’s own break from established trading partners, is slated to visit with Trump later this week. A White House spokesman said meetings with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto are in the works.
“What we want is fair trade,” Trump said during his meeting with executives. “And we're gonna treat countries fairly, but they have to treat us fairly.”
Since the election, TPP has become politically toxic in both parties. On Monday, five Democratic senators introduced legislation that would require the president to notify each of the 11 other countries involved in the deal of the United States’ withdrawal. It would also block any so-called “fast track” approval of the agreement in the future. AFL-CIO President Richard Trumka hailed the president’s executive order and called for additional action.
“They are just the first in a series of necessary policy changes required to build a fair and just global economy,” he said in a statement.
On Monday, Trump highlighted his proposal for a border tax as a centerpiece of the administration’s trade policy. Dow Chemical Chief Executive Andrew Liveris, who was among the business leaders who met with Trump on Monday morning, said the border tax was discussed extensively. He said the executives were asked to return in 30 days with a plan to shore up the manufacturing industry.
“I would take the president at his word here,” Liveris said. “He’s not going to do anything to harm competitiveness. He’s going to actually make us all more competitive.”
Still, it remains unclear exactly how a border tax would be implemented. Testifying before the Senate finance committee last week, Trump’s nominee to lead the Treasury Department said any border tax would be targeted at specific businesses. However, the president does not have the power to levy taxes, and international trade experts have warned singling out companies could violate existing treaties.
House Speaker Paul D. Ryan has proposed allowing businesses that export goods to deduct many of their expenses, while those that import would not receive the same benefit. But in a recent interview with the Wall Street Journal, Trump dismissed the plan, known as border adjustment, as “too complicated.”
Economists have warned that many of Trump’s proposals — including suggestions that he would impose blanket double-digit tariffs on goods from Mexico and China — could backfire on the American economy by causing prices to rise or igniting a trade war. And business groups such as the U.S. Chamber of Commerce had lobbied extensively for passage of TPP, touting the deal as an engine of job growth and an important check on China’s growing ambitions.
“TPP withdrawal will slow U.S. [economic] growth, cost American jobs, & weaken U.S. standing in Asia/world,” said Richard Haas, president of the Council on Foreign Relations, said in a tweet early Monday. “China could well be principal beneficiary.”
But other industry groups argued that Trump’s approach would better leverage America’s status as the world’s largest economy. Scott Paul, president of the Alliance for American Manufacturing, said his group is hoping that opening up NAFTA could provide more leeway to combat currency manipulation in countries outside the agreement. His group, which represents both industry and unions, is also seeking more stringent rules of origin that dictate how much production must occur with member countries to qualify for free trade status.
“The details are going to matter a lot,” Paul said. “Renegotiating NAFTA obviously entails some risks and some rewards.”