Trump wants to ditch his signature trade deal. It’s not that easy
By Elisabeth Buchwald, CNN
(CNN) — Six years ago, President Donald Trump hailed his US-Mexico-Canada Agreement, or USMCA, as the “fairest, most balanced, and beneficial trade agreement we have ever signed.”
Now, as the pact is up for review, Trump says he’s ready to abandon it.
“I’m not looking to renew it,” Trump said last month. “We don’t need anything that Canada has. We don’t need anything that Mexico has, but they need everything that we have. They have to treat us better.”
That’s not exactly true, but even if it were, Trump can’t simply scrap the deal.
The USMCA, which replaced the North American Free Trade Agreement, facilitates roughly $2 trillion in annual trade among the three neighboring countries. Supply chains — particularly in the auto industry — depend on the agreement’s duty-free provisions, with parts crossing the US, Mexican and Canadian borders multiple times before a finished vehicle rolls off the assembly line.
All three countries are required to review the agreement every six years, and decide whether to renew it or make modifications.
After conducting a virtual meeting with trade leaders from Mexico and Canada on Wednesday, the Trump administration failed to reach an agreement, US Trade Representative Jamieson Greer said in a statement. But this doesn’t mean the USMCA will disappear. Instead, the status quo will be maintained and the countries will have to reconvene annually for the next 10 years to negotiate.
Senior administration officials signaled an appetite to continue trade talks on a bilateral basis to work out specific issues, such as reducing the trade deficit the United States runs with Mexico and Canada. Trade deficits occur when one country imports more from another country than it exports.
While prolonged negotiations won’t significantly impact consumers, they would inject a fresh dose of uncertainty for businesses and disrupt their long-term plans, said Scott Lincicome, a vice president at the libertarian-leaning Cato Institute.
Withdrawing from the deal altogether is an option, too. But it’s complicated. The earliest it could happen is six months from now, per the terms of the agreement.
And there’s also the question as to whether Trump would have the authority to do so without congressional approval. In a 2020 USMCA report, the Senate Finance Committee said that “The United States cannot withdraw from a congressionally approved trade agreement without the consent of Congress.” Such a move would almost certainly face legal challenges and draw out the process even longer, Lincincome said.
But senior administration officials said on Wednesday that the extent to which they need a green light from Congress “depends on the nature of the results of these negotiations.”
For instance, if one country committed to lowering trade barriers as part of an agreement, congressional approval wouldn’t be needed, they argued. “We only have to have something approved by Congress if we’re changing a US law.”
Legality aside, economists and trade experts by and large aren’t expecting a withdrawal, given what’s at stake for the United States.
In addition to straining US relations with two of America’s top trading partners, “We’d see chaos, stock market gyrations,” Lincicome said, likely accompanied by higher prices and shortages as supply chains adjust to higher tariffs.
The Trump administration is less likely to attempt the nuclear route right now, Michael Pearce, chief US economist at Oxford Economics, said in a recent note. Trump’s favorability is already under pressure as a result of the rise in gas prices and midterm elections are around the corner.
“There’s only a slim chance that the Trump administration would trigger the six-month exit clause and pull out of the USMCA entirely, given the prohibitively large costs this would impose on US investment and trade, particularly in key swing states in the Midwest.”
The-CNN-Wire
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