April was an initial “test case” for the Trump administration’s new trade policy. In a series of high level interactions with leaders from China, Japan, South Korea, Canada and Mexico, leading administration figures started the process of engaging trading partners on their “review and revise” approach to trade agreements. In each case, the results yielded more defined processes for bilateral discussions, though the results of those discussions remain in the future.
The visit to Mar-a-Lago on April 6-7 by Chinese President Xi Jinping was highly anticipated given the strong signals President Trump sent in advance, that he would emphasize the need for change in terms of trade between the two countries. In the end, the meeting brokered a change in the structure of bilateral dialogue, replacing the Obama-era Strategic & Economic Dialogue with four separate tracks for bilateral engagement: a Diplomatic and Security Dialogue which would focus on common security challenges; a Comprehensive Economic Dialogue to focus on trade and investment; a Law Enforcement and Cybersecurity Dialogue; and a cultural/social dialogue.
Commerce Secretary Wilbur Ross, National Economic Council Chair Gary Cohn, and Chinese Vice Premier Wang Yang met at Mar-a-Lago during the Summit and agreed to develop a joint “100 Day Plan” aimed at identifying issues where the two sides could make progress quickly and identify issues for more intensive longer term work. U.S. Trade Representative Robert Lighthizer (once confirmed) will also participate in the dialogue in the future alongside Chinese National Development and Reform Commission (NDRC) chair He Lifeng.
The agreement to restructure processes in the US-China economic dialogue was seen as progress given the sharp rhetoric the administration had issued regarding Chinese trading practices. Such “confidence building” measures helped put into context the administration’s decision on April 14 not to label China as a currency manipulator, contrary to the intent the President voiced during the campaign.
The early positive moves with China helped to draw focus on Vice President Pence’s visit to Korea and Japan in mid-April. The Vice President in Seoul signaled the administration’s desire to renegotiate the Korea-US Free Trade Agreement (KORUS FTA). The administration is linking the persistence of a bilateral deficit in goods trade ($32 billion per year) to deficiencies in the agreement. Details of how and when the review would take place remain to be discussed until a new administration is in place in Korea following elections to be held on May 9.
Later that week in Tokyo, the Vice President, accompanied by Commerce Secretary Ross inaugurated the US-Japan Economic Dialogue. The administration’s decision to leave the Trans Pacific Partnership in January in effect provides an opportunity to achieve a bilateral free trade agreement with Japan. Given the $108 billion of trade between the two countries, it was incumbent upon the administration to find a way to recast the bilateral trade relationship and establish a path for future negotiations. The Economic Dialogue will have three “tracks”: a macroeconomic coordination track in which structural issues including labor market reform and exchange rate issues will be discussed; a trade and investment track which is intended to address the future potential for a bilateral free trade agreement; and a sectoral track in which long-standing areas where bilateral trade is inhibited, including agriculture and automotive products, will be addressed.
Again, the administration is putting new structures in place to engage a major trading partner on the concerns it considers not properly addressed in existing agreements. The process outcomes from the Vice President’s visit will shift towards engagement on substantive issues in the coming weeks.
Meanwhile, activity in Washington focused on the administration’s evolving approach to the potential renegotiation of the North American Free Trade Agreement with Canada and Mexico. The administration’s public presentation reinforced President Trump’s campaign message that NAFTA required fundamental change. Its negotiations with the House and Senate on the terms of its formal notification of intent to renegotiate took a path more consistent with the requirements of the Trade Promotion Act of 2015. The administration’s initial letter to Congress on April 3 emphasized not only its priorities of reducing trade deficits and promoting U.S. manufacturing, but also foreshadows the opportunity to update NAFTA rules in areas including the digital economy, intellectual property, and non-tariff measures, while also signaling intent to revise the NAFTA rules on trade remedies to remove the requirement for NAFTA binational panel approval to enforce trade remedies.
The political signals surrounding the renegotiation were amplified by several other developments during April. These included President Trump’s strong response to the loss of Canadian markets for U.S. dairy exports due to the reintroduction of milk classification in Canada; the imposition of countervailing duties on softwood lumber from Canada; the looming expiry of a suspension agreement preventing antidumping duties on sugar imports from Mexico; and the award on April 27 of World Trade Organization authorization for Mexico to retaliate against $163 million of U.S. imports in the WTO case against U.S. tuna labeling rules.
The trilateral back and forth on long standing trade irritants reached a crescendo when a report circulated on April 26 that the White House was considering terminating NAFTA by Executive Order. Subsequent conversations among President Trump, Prime Minister Trudeau, and President Peña Nieto confirmed the three governments would renegotiate the agreement. It is clear that the negotiating table, once the three sides engage, will be loaded with a full set of North American trade issues, many of which have been unresolved since the 1980s.
The net result of the Trump administration’s busy April of bilateral engagement is that it has established new structures for dialogue with China and Japan that appear to suit its approach better; has put Korea on notice that the KORUS FTA will be reviewed; and set NAFTA on a path for renegotiation.
With the Senate expected to confirm USTR-designate Robert Lighthizer early in May, the table is set for the Trump administration to move on multiple fronts on trade policy in the coming months.