Steel Tariffs Turn Into Nafta Chip as Trump Plays Dealmaker
Steel Tariffs Transform Into Nafta Chip as Trump Plays Dealmaker
(Bloomberg) -- President Donald Trump has turned his steel tariffs from a tool for protecting national security into a bargaining chip offered to Canada and Mexico to seal a quick deal on Nafta.
The U.S. has formally offered to exclude the neighboring countries from the president’s planned tariffs on steel and aluminum if they can agree on a deal on a new North American Free Trade Agreement. “The president’s view was that it makes sense that if we get a successful agreement, to have them be excluded,” Lighthizer told reporters in Mexico City following the seventh round of Nafta talks on Monday. “It’s an incentive to get a deal.”
The U.S. is in a hurry for a reason. A presidential election is scheduled for July in Mexico, and left-wing populist Andres Manuel Lopez Obrador is leading in the polls. Lighthizer said it will take months to go through the required steps to seek congressional approval for a new deal. U.S. midterm congressional elections take place in November.
That gives the administration about “a month or a month and a half” to reach an agreement in principle on a new Nafta before the political landscape may have shifted significantly, Lighthizer told reporters. Otherwise, talks may spill into next year, by which time a leftist party may be in power in Mexico and Democrats may control at least one of the two chambers of the U.S. Congress, making it tougher for the Trump administration to work out a deal, let alone get it approved by U.S. lawmakers.
Treasury Secretary Steven Mnuchin on Tuesday confirmed the waiver proposal for Mexico and Canada, and expressed cautious optimism about reaching a final Nafta deal. The administration is examining the impact of imposing the tariffs on a “case-by-case basis,” Mnuchin told lawmakers during a congressional hearing in Washington.
Trump plans to reveal specifics about his plan later this week, said Mnuchin. “I look forward to have the exact details,” he said. “We’re not looking to get into trade wars.”
The question is whether Canada and Mexico will view the steel and aluminum offer as more of a stick than a carrot. It also raises the prospect that Trump could use tariffs as a catalyst for quick deals with other metals-exporting nations such as South Korea, which is in the midst of negotiations to revamp its own trade pact with the U.S.
By using the tariffs as leverage in trade negotiations, Trump is undermining his defense that they’re needed on national security grounds in the event countries file a legal challenge at the World Trade Organization, Republican political strategist Karl Rove told Fox Business on Tuesday.
Canadian Foreign Minister Chrystia Freeland, speaking in Mexico City on Monday, repeated the threat of retaliation if the White House imposes the duties on its northern neighbor. Mexican Economy Minister Ildefonso Guajardo said it’s sensible to exclude Mexico from the tariffs and that his country could respond with trade measures of its own.
Canada is the largest supplier of steel and aluminum to the U.S., while Mexico is the No. 4 source of steel. Canadian Prime Minister Justin Trudeau told Trump in a phone call on Monday “that the introduction of tariffs would not be helpful to reaching a deal on Nafta,” according to a statement.
Republicans in Congress are also pushing back with an extraordinary public campaign to halt the tariffs over worries of triggering a trade war. White House economic adviser Gary Cohn is summoning executives from American companies that rely on steel and aluminum to meet Trump this week in a last-ditch effort to change the president’s mind.
The tariff threats cast a pall over Nafta talks that are already running into overtime. While Canada and Mexico cited agreements on individual chapters as markers of progress, there’s no sign of a breakthrough on the most controversial subjects that will be key to reaching a deal to update a pact that Trump has repeatedly threatened to quit.
But Lighthizer suggested his team is working hard to get a quick deal. He indicated that the U.S. is searching for a compromise on content requirements for cars to qualify for Nafta’s duty-free treatment, one of a handful of major sticking points.
“We are meeting with auto companies to work out something that’s in everyone’s interests, drawing on various proposals that people have made,” Lighthizer said. “It’s clear that autos are a huge part of the problem and you have to rebalance in that area, and we’re trying to do that in a sensible way.”
If Nafta negotiators don’t reach a deal soon, talks could break down. In that event, the U.S. has said it would consider doing bilateral pacts with Canada and Mexico. While U.S. negotiators will stay in touch “every few days,” the U.S. hasn’t committed yet to another round of talks, Lighthizer said. The U.S. may pause the discussions during the Mexican election campaign, he said.
Guajardo played down the idea of stopping negotiations for the Mexican vote, saying that President Enrique Pena Nieto, whose term ends in December, is willing to stay at the table as long as he can to reach a Nafta deal. He also said the U.S. steel tariff decision shouldn’t be mixed with Nafta talks because it could escalate any tension in negotiations.
Trump roiled markets with his plan, announced on March 1, to impose a 25 percent tariff on imported steel and 10 percent on aluminum under the seldom-used Section 232 of a 1960s trade law. It allows the president to impose trade barriers to protect national security.
Trump, in a tweet early Monday, first floated the idea of excluding Canada and Mexico from the tariffs if they accept U.S. demands for improving Nafta.
--With assistance from Saleha Mohsin
To contact the reporters on this story: Andrew Mayeda in Washington at firstname.lastname@example.org, Josh Wingrove in Ottawa at email@example.com, Eric Martin in Mexico City at firstname.lastname@example.org.
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