Trump boxed in on trade

President Trump is in a trade mess.

His new trade deal to replace the 1994 North American Free Trade Agreement (NAFTA) is bogged down in Congress with little chance of passing, while the China deal he promised more than a year ago is quickly unraveling.

The administration on Friday increased tariffs on $200 billion in Chinese goods, raising the prospect of retaliatory measures from China, and Trump is due to make a decision Saturday on whether to place tariffs on automobile imports.

{mosads}Congressional Republicans are frustrated that the new NAFTA deal, known as the United States-Mexico-Canada Agreement (USMCA), is stalled with little prospect of winning ratification in the Democratic-controlled House. That impasse is coming at a time when negotiations with China are sliding backward, leading to prolonged pain in farm states whose exports have been caught up in the trade war.

“From the agriculture states, states where agriculture is key, the impact is being felt,” said Senate Republican Conference Chairman John Barrasso (R-Wyo.). “People at home are still absolutely with the president, but they’d like to see this come to a conclusion.”

GOP senators this past week pressed Vice President Pence at a private meeting to speed up talks with Speaker Nancy Pelosi (D-Calif.) to get a deal to implement USMCA, which needs congressional approval, and to reach an agreement with China.

“We need to see it done soon. The confidence back home is shaky. Folks are hurting,” Sen. Joni Ernst (R-Iowa), who represents a farm state and is up for reelection in 2020, told The Hill after Tuesday’s meeting.

But Pelosi and Senate Minority Leader Charles Schumer (D-N.Y.) are insisting that the deal’s labor and environmental protections need to be strengthened, which would mean reopening the talks with Canada and Mexico and stretching the process out for several more months.

On the China front, progress is slow going.

{mossecondads}Treasury Secretary Steven Mnuchin and U.S. Trade Representative (USTR) Robert Lighthizer for weeks had told lawmakers they were making good progress in talks with the Chinese. As a result, members of the Senate Finance Committee thought a deal would be concluded as soon as this month.

Instead, what was expected to be a pivotal round of talks in Washington this past week ended in disappointment.

China’s top trade negotiator, Liu He, left the talks Friday morning without a deal, and Mnuchin announced later in the day that no further negotiations are scheduled.

Trump signaled Friday that he’s ready to let tariffs remain in effect for months to put pressure on the Chinese.

“Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch! In the meantime, China should not renegotiate deals with the U.S. at the last minute,” Trump tweeted on Friday morning.

Riley Walters, a policy analyst for Asia economy and technology at the conservative Heritage Foundation, warned Friday that Trump’s tariffs will “have negative effects” on the economy.

“There are a number of studies out there talking about the effect these could have on the general economy, on [gross domestic product (GDP)] growth for the future, ranging anywhere from a GDP loss of 10 percent up to a whole percentage point,” he said.

GDP in the first quarter expanded at a 3.2 percent rate.

He said the likelihood of resolving trade talks with China is “certainly not as positive” as it was before Trump announced last week that he would raise tariffs on $200 billion of Chinese imports from 10 percent to 25 percent.

Uncertainty over Trump’s trade agenda has led to volatility in the stock market, further reflecting concern about the impact of tariffs on the economy for the rest of this year and next.

“Americans are much less free to trade today than we were on Jan. 20, 2017, when Trump took office. He withdrew us from the Trans-Pacific Partnership, which was a huge agreement,” said Dan Ikenson, director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, a think tank that favors free trade.

“He has imposed duties on $250 billion worth of Chinese goods and another $70 billion with the aluminum tariffs and other tariffs,” Ikenson added. “I think there were some serious miscalculations done by President Trump and USTR Lighthizer, and we’re going to be in far worse shape when they’re gone than when they came.”

Lighthizer’s announcement Monday night of tariff increases on China led to a market sell-off the next day. Markets plummeted again on Friday before rebounding when Mnuchin described the negotiations with Liu as “constructive.”

Trump argues that trading partners such as Mexico, Canada, members of the European Union and China have taken advantage of the United States for decades. And while free trade proponents acknowledge that foreign trading partners benefit from relationships wherein U.S. goods often face bigger barriers than foreign imports, they say the net result is positive for the economy because it lowers prices for U.S. consumers and opens new markets for American exporters.

So far Trump has yet to deliver on new trade deals that would be more advantageous to domestic industries, ranchers and farmers, while his tariffs have prompted retaliatory measures that are hurting U.S. exporters.

While Trump is under pressure from Republican allies in Washington to get moving on USMCA and come to a quick deal with China, he’s also under pressure from Democrats not to agree to weak deals.

“The Democrats want to outflank Trump on the China issue, so he has to be tough. If he relents, the Democrats are contesting him for the Rust Belt voters,” Ikenson said. “So Trump realizes he has to be tough, and that’s not good for the rest of us that politics are leading us in that direction.”

He said the desire to win races in Rust Belt states in 2020 also creates an incentive for Democrats to drive a hard bargain on implementing USMCA.

“Democrats for 25 years have been railing against NAFTA, and they’ve been using it as a lightning rod to get voters to the polls. All of a sudden they’re going to agree with Trump and be on the record supporting a trade agreement they were opposed to, even though it’s been reformed?” he added. “I think it’s easier for them politically to point to it and say, ‘This is more of the same.’”