Faltering U.S.-China trade talks, rising tariff pressure on American farmers and a rapidly disappearing opportunity to ratify the new North American Free Trade Agreement are fuelling Washington’s renewed push to negotiate the removal of steel and aluminum levies from Canada and Mexico, analysts say.
“I think we are close to an understanding with Mexico and Canada,” on resolving the tariffs, U.S. Treasury Secretary Steven Mnuchin said at a U.S. Senate Appropriations subcommittee hearing Wednesday. He not provide any details about the potential agreement.
Foreign Affairs Minister Chrystia Freeland was in Washington Wednesday to push for the removal of the tariffs during meetings with U.S. Trade Representative Robert Lighthizer.
“When it comes to Canada it has still been the case for us that as long as the tariffs remain in place ratification would be very, very problematic,” Freeland told reporters on Capitol Hill after her meeting with Lighthizer and other U.S. lawmakers.
She did not offer any comment on a potential deal on the metal tariffs, or provide any details of discussions between the two countries.
Freeland’s trip came on the heels of earlier discussions in Toronto with Mexican Economy Minister Graciela Marquez and top trade official Jesus Seade. Both Canada and Mexico have said they won’t ratify the new North American Free Trade Agreement with the tariffs in place.
“Right now the Mexicans and Canadians are hanging tough together on this issue,” said Dan Uzcjo, an Ohio-based trade lawyer with Dickinson Wright who has been tracking the situation for clients. “We’ll see how long that lasts. Mexico’s tariffs have hit very hard in U.S. farm country so Canada’s position is a lot stronger with them by its side.”
U.S. President Donald Trump extended tariffs on steel and aluminum imports to Canada and Mexico last June, prompting both countries strike back with levies on a range of U.S. products. While Canada targeted items including Kentucky bourbon, ketchup and maple syrup, many of Mexico’s tariffs took aim at American agricultural goods produced in the farm states that supported Trump’s 2016 election.
Mexico’s tariffs have hit very hard in U.S. farm country so Canada’s position is a lot stronger with them by its side
Dan Uzcjo, trade lawyer
U.S. farmers have also been hard hit by retaliatory tariffs from China, which imposed punitive levies on pork and soybeans. Trade talks between the two countries soured last week as Trump accused China of reneging on certain agreements and hiked tariffs to 25 per cent from 10 per cent on US$200 billion of Chinese imports. Trump has also threatened to place additional levies on the remaining US$325 billion in goods entering the U.S. from the Asian superpower.
In response, China vowed to boost tariffs on US$60 billion in U.S. goods, including a wide range of agricultural products, with promises to retaliate further.
The multiple tariffs facing American farmers has dragged down prices and left behind a glut of unsold products.
“Farmers are hurting, they’re getting nervous,” said Dave Salmonsen, a trade specialist at the American Farm Bureau in Washington, D.C. “It’s at this point that they are thinking about planting and wondering if they’ll have a market where they can sell their crops. They want to put these tariff disputes behind us.”
To soften the blow of Beijing’s retaliatory duties, Trump on Monday said farmers would receive about US$15 billion dollars in aid, on top of the US$12 billion in relief already provided by the government. A desire to also lighten the tariff load on farmers is likely one of the reasons behind the current discussions with Canada and Mexico, Uzcjo said.
“The stall in the U.S.-China talks has put a lot of pressure on the system,” he said. “U.S. officials need to release some of the steam from farm country and getting rid of the Mexican tariffs by lifting the steel tariffs would really help.”
In addition, U.S. lawmakers from both the Republican and Democrat parties – alongside Mexican and Canadian officials — have identified the steel and aluminum levies as key obstacles to the ratification of the revamped NAFTA. Republican Senator Chuck Grassley of Iowa, chair of the finance committee responsible for guiding the deal to approval in the U.S. Senate, has said the deal will not win approval with the tariffs in place.
U.S. officials need to release some of the steam from farm country and getting rid of the Mexican tariffs by lifting the steel tariffs would really help
“Trump needs to get rid of those retaliatory tariffs because it’s essential to getting the Republican votes to get the (new NAFTA) passed,” said Gary Hufbauer, a senior fellow at the Washington-based Peterson Institute for International Economics. “If there are five or more Republican naysayers I think the deal falls through.”
Time is running short to present the deal for approval from the U.S. Congress. Indeed, if the legislation is not put before lawmakers by late July, it runs the risk of being sidelined by the 2020 presidential elections, analysts say.
And the deal faces even more obstacles from Congressional Democrats led by House Speaker Nancy Pelosi, who are demanding greater enforcement of Mexican labour reforms and changes to pharmaceutical provisions.
“The next key thing is what will have to be done for Pelosi to allow a vote to even take place,” Hufbauer said.