The administration’s move removes a huge hurdle to getting the USMCA trade deal ratified.
But now Canada and Mexico will get a reprieve, as the US has reached a deal to lift tariffs on steel and aluminum coming from those two countries. This eliminates a huge hurdle to the ratification of the United States-Mexico-Canada Agreement (USMCA), the revised version of NAFTA.
The US struck a deal with Canada and Mexico that would increase enforcement to ensure cheap Chinese imports don’t make their way into the US market. The tariffs are to be lifted no later than 48 hours after the agreement was officially announced.
Just to recap: In March 2018, the Trump administration placed a 25 percent tariff on steel and a 10 percent tariff on aluminum imports — though Trump delayed putting them on Canada and Mexico until later that spring. Trump imposed the tariffs under the authority of Section 232, a provision of the Trade Expansion Act of 1962 that gives the president power to block or restrict imports for national security reasons.
While getting steel and aluminum from close allies like Canada and Mexico might not seem like a national security threat, the Trump administration was using some very creative maneuvering to essentially boost the domestic US steel industry and punish China. But the tariffs ended up hitting US allies the hardest because China isn’t actually a huge exporter of steel to the US, in part because the US already has other restrictive policies in place against cheap Chinese steel exports.
For obvious reasons, then, Canada and Mexico bristled at the tariffs, and it became a major sticking point during the NAFTA renegotiations last year. Canada in particular was deeply insulted by the national security justification, as it has long been one of America’s closest defense allies and its troops have fought alongside American forces in Afghanistan and elsewhere.
But even after all three countries struck a revised NAFTA deal — which Trump renamed the USMCA — in October (and later signed it in November), the US kept those tariffs in place. That stalled the USMCA’s ratification, including here in the US, where both Republican and Democratic lawmakers wanted to see those tariffs removed before they would consider the updated trade deal.
“Canadian and Mexican trade officials may be more delicate in their language, but they’re diplomats. I’m not,” Senate Finance Committee Chair Chuck Grassley (R-IA) wrote in a Wall Street Journal op-ed last month. “If these tariffs aren’t lifted, USMCA is dead. There is no appetite in Congress to debate USMCA with these tariffs in place.”
Now, Canada, Mexico, and the US Congress finally get their wish.
“The White House got the message, loud and clear, that if they wanted a chance to get USMCA passed, they had to get rid of these steel and aluminum tariffs,” Bruce Heyman, who served as US ambassador to Canada from 2014 to 2017, told me.
Mexico and Canada are expected to lift their retaliatory tariffs now that this deal is in place too.
The tariff issue has apparently been solved. What’s next for USMCA?
The lifting of these tariffs removes perhaps the biggest obstacle to the passing of USMCA, but other hurdles remain.
Canada has a short window to pass the USMCA this year — its Parliament adjourns June 21, after which everyone will head home to campaign for federal elections in October. Prime Minister Justin Trudeau is also beleaguered by scandal, and he and his Liberal Party are struggling in the polls. But on Friday, Trudeau celebrated the end of tariffs as a major win, saying that Canada “stood firm and would not back down until we achieved today’s outcome.” He might look to solidify that victory and get the USMCA through Parliament as soon as possible.
Mexico, meanwhile, has already moved to pass labor laws last month that will help it comply with the new standards in the USMCA, which ameliorated some concerns Democrats and unions in the US had about the new trade deal.
But some concerns remain: House Speaker Nancy Pelosi and other House Democrats have made clear that they want strong enforcement to those labor provisions, along with some beefing up of environmental protections and drug provisions.
Pelosi has said these can’t be dealt with in side letters or legislation and need to be worked out in the main deal itself, but the Trump administration, Mexico, and Canada have absolutely no appetite to reopen negotiations on the agreement.
The Trump administration’s top trade official, Robert Lighthizer, has upped his outreach with Democrats on Capitol Hill. And this week, all sides seemed hopeful that the administration and House Democrats could reach some sort of resolution to get the USMCA through Congress.
This would undoubtedly deliver Trump a major win with the 2020 election in sight — even though Trump exaggerates the differences between NAFTA and the USMCA, which is really just an updated and upgraded version of the original trade deal.
But Democrats might be more willing to deliver a victory to Trump this August rather than once the 2020 campaign season is fully underway. And if they can successfully strengthen enforcement for labor and environmental standards, then they’ll get a win out of it too.