Business | ANALYSIS

Trump strong-arm tactics on NAFTA a preview of trade talks to come

AFP-JIJI

U.S. trading partners should take note of one key element of the new trade deal with Mexico and Canada: Regardless of the details, President Donald Trump can credibly claim his strong-arm tactics worked.

Many analysts say the United States did not gain that much in the new North American Free Trade Agreement, now known as the U.S.-Mexico-Canada Agreement, which was due to be revised anyway. But the threats of retaliation against close allies brought results.

That should worry not just perennial adversary China, already the subject of punishing tariffs on half its exports to the United States, but also Japan, India and Brazil.

In his triumphant news conference announcing an agreement on the continental trade deal, Trump lambasted countries for high duties on U.S. products and poor treatment of American businesses.

“India, which is the tariff king. … India charges tariffs of 100 percent,” Trump said. “The European Union — it’s been very tough on the United States. Brazil is another one. That’s a beauty. They charge us whatever they want.”

Trump credits his use of tariffs and tariff threats to pressure other governments to come to the negotiating table. Japan opened talks on a free trade deal after he threatened “very, very substantial tax on your cars if you don’t.”

“Without tariffs … we wouldn’t be standing here,” Trump said. Even the threat alone works, “that’s how powerful they are.”

Many trade experts were relieved at the conclusion of the NAFTA talks that the final deal did not do as much damage to regional trade as they feared, but they do worry about the precedent that “bullying works.”

“It’s sad to say that,” said Patrick Leblond, a trade expert with Canada’s Center for International Governance Innovation.

Trump made unacceptable demands “and then added all these threats,” which gained credibility when Trump actually followed through with tariffs on steel and aluminum earlier this year, Leblond said.

That “is going to be the playbook,” Syracuse University trade economist Mary Lovely warned.

And while that is disturbing to negotiators used to playing by rules of traditional negotiations, the United States may find it hard to exert the same pressure on other countries.

“How far the bullying goes still depends on how desperate the other party is for access to the U.S. market,” said Kimberly Ann Elliott, a trade expert at the Center for Global Development. “Canada and Mexico were clearly very dependent and had to have a deal.”

But countries such as India and Brazil are less reliant on American consumers and the trading relationship is fairly small.

And in the case of India, “it would be a real battle,” Elliott said. The government “just never wants to be seen caving to anybody, particularly the U.S., and is very interventionist in the economy.”

Trump again portrayed the U.S. trade deficit as money given to other countries, rather than the exchange of goods and services, and in nearly all the trade talks has included a demand for countries to buy more U.S. goods.

By that metric, it is odd that he has singled out India and Brazil. The U.S. trade deficit with India has doubled over the last 10 years but only to $27 billion, while there was a surplus with Brazil of $28 billion in 2017.

The deficit with China last year for goods and services was $335 billion.

Beijing has not been inclined to cave to U.S. pressure either and has retaliated with its own tariffs.

And the main issues with China have more to do with policies that are “less visible and less measurable,” and therefore less likely to be affected by tariffs, Elliott said.

But she still predicts Beijing will come to the table to get some kind of agreement.

“China wants to talk very badly,” Trump said, but added, “it’s too early to talk.”