With almost three years behind President Donald Trump to launch, negotiate, and complete his most ambitious trade initiatives, 2020 may come to be seen as the first year that the Trump era in trade policy was fully in place. In the opening weeks of 2020, the renegotiation of the North American Free Trade Agreement (NAFTA) will likely see final passage, the details of an interim deal with China will be fully revealed, a narrow agreement with Japan will be implemented and the World Trade Organization Appellate Body (WTOAB) will remain incapable of issuing rulings. In short, this will weaken the multi-lateral system and embolden a United States President to remake bilateral trading relationships to his own advantage.
Looking ahead to new initiatives, the United States and United Kingdom appear increasingly likely to negotiate a new trade agreement with great urgency following the completion of Brexit by January 31, 2020 while trade tensions with the European Union (EU) are set to escalate.
This trade record will be a cornerstone of his “Promise Made, Promises Kept” campaign message where trade may once again be a defining issue. Here is a review of 2019 trade policy and what to expect in the coming year:
- United States-Mexico-Canada Agreement (USMCA). In the closing legislative days of 2019, Speaker of the U.S. House of Representatives Nancy Pelosi and U.S. Trade Representative Robert Lighthizer reached a historic deal to amend the USMCA in ways that secured not only the support of the House Democratic Working Group and Congressional leadership, but also the American Federation of Labor and Congress of Industrial Organizations (AFLCIO). This marks the first time in almost 20 years that the nation’s largest union has supported a trade deal. The changes include, among others, provisions to ensure stronger enforcement through state-to-state arbitration panels and on-the-ground facility inspections, as well as the elimination of intellectual property protections for biologic drugs. The U.S. Senate is now slated to take up the agreement after the Finance Committee passed it by an overwhelming bipartisan margin of 25-3. With the impeachment trial delayed, the Senate may pass the agreement as early as next week if procedural hurdles can be overcome. China. The President also reached an end-of-year agreement with China, stabilizing relations with the U.S.’ largest bilateral trading partner after 18 months of tit-for-tat tariff escalation. Under the President’s direction, the U.S. levied tariffs of 15 to 25 percent on roughly $360 billion worth of imports from China by mid-December 2019. The goal was to secure structural reforms to China’s model of state capitalism. Ultimately, the President agreed not to impose tariffs set for December 15, 2019, on the $160 billion in remaining imports from China, as well as to reduce from 15 percent to 7.5 percent the additional tariffs implemented on September 1, 2019, on $112 billion of clothes, shoes, consumer electronics and many other products. In return, China committed to, among other disciplines:
- Curb its technology transfer practices
- Lift foreign ownership limits on financial services
- Buy $200 billion in additional American agriculture, energy and manufactured goods.
The full text of the 86-page document detailing the deal will likely be made public in early January 2020 concurrent with its planned signing on January 15. The remainder of the year will test the enforcement mechanism to raise and resolve any questions about fulfillment and compliance.
- Japan. In the fall of 2019, the U.S. and Japan reached an agreement on digital trade and reciprocal market access for a limited number of each other’s agricultural products and industrial goods, which led the President to hold back on levying tariffs against imports of Japanese autos. This deal, which opens the Japanese market to U.S. beef, pork and certain fruit, was implemented by both sides on January 1, 2020. The administration was careful to negotiate an agreement that would not require congressional approval, causing bipartisan concern about its narrow scope and lack of consultations. Both countries also pledged to continue negotiating toward a second phase of the agreement after four months of consultations on its scope. The intent is that the scope of the phase two talks beginning in May 2020 will be comprehensive, covering all issues traditionally included in a U.S. trade agreement. But it remains to be seen how serious these negotiations will be with a difficult political calendar in the U.S. and reluctance among the Japanese to continue negotiating on a bilateral basis—rather than recruiting the U.S. back into a revised Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
- U.K. Following a decisive victory in the December 12, 2019, general election, Boris Johnson now enjoys the mandate to—as the campaign slogan went—“Get Brexit Done” by the January 31, 2020, deadline previously agreed to with the European Union. However, the passage of the Brexit agreement through Parliament will mark the end of only one chapter of the Brexit story and kick off the so-called “Transition Period.” For the remainder of 2020, the U.K. will remain subject to the EU’s rules and regulations but will not formally be a member of the economic bloc. During this time, Britain and the EU will negotiate the rules that will govern its trading relationship in 2021 and beyond. At the same time, Britain may begin formal negotiations with the U.S. on a free trade agreement, which both Prime Minister Johnson and President Trump have publicly committed to completing as quickly as possible. Although the new political context will give the talks great urgency and transform the previous informal consultations into formal talks, completing a comprehensive bilateral agreement between the U.S. and U.K. will be difficult before the U.S. elections in November. As a result, it is possible that the countries reach a narrow ‘phase one’ deal that harvests early ‘wins’ that the President can tout on the campaign trail similar to the approach taken last year with Japan.
- EU. Tensions are set to rise between the U.S. and EU on trade in the year to come. After winning a long-running case at the World Trade Organization (WTO) against EU subsidies to aircraft manufacturer Airbus, the U.S. moved forward with tariffs against sensitive European exports and even threatened to raise those tariffs due to Europe’s failure to comply with the ruling. The U.S. has also proposed tariffs of up to 100 percent on imports of sparkling wine, cheeses, handbags and other French products in retaliation for that country’s Digital Services Tax. The U.S. argues that the tax discriminates against American tech companies. In its notification of the retaliation against France, the Office of the United States Trade Representative (USTR) noted that it is “exploring” whether to retaliate against similar tax measures proposed by Austria, Italy and Turkey. Tired of President Trump’s trade unilateralism and tariff threats, the EU is also set to become more confrontational in 2020. The European Commission (EC) will consider a proposal to update its enforcement regulation and impose tariffs against countries that violate WTO rules while at the same time preventing the WTO from operating—a definition squarely aimed at the U.S. It will take nine months for the proposal, which was informally referred to as a “bazooka” by EU leaders, to complete the EC’s legislative process. But the proposal could lead to more tariffs between the U.S. and EU.
- WTO. To borrow a sports analogy, 2020 will be a “rebuilding year” for the WTOAB after the U.S.’ blockage of all nominees finally led to an insufficient number of panelists to make decisions on cases and issue rulings. Without a final binding dispute settlement mechanism, WTO members with disputes face several options, including simply accepting the initial panel’s rulings without appealing. However, the remaining players are not standing still. The EU proposed a temporary alternative appellate system to resolve disputes that would exclude the U.S., which is now supported by China, further isolating the U.S. in the WTO. The failure of the WTOAB injects greater urgency into the effort to reform its operations, but also invites other countries to move forward with WTO-inconsistent policies knowing that they may not be stopped.