During his presidential campaign, Donald Trump vowed to introduce significant changes to U.S. trade policy including commitments to withdraw from the Trans-Pacific Partnership (TPP) and to renegotiate or withdraw from NAFTA. In his first week in office, President Trump not only began to implement this sweeping trade agenda he also signaled a willingness to impose a 20% border tax on imported goods from certain countries. In order to safeguard their interests, it will therefore be crucial for businesses to engage with private and public sector allies in both countries.
The art of the (trade) deal
Three days after taking office, President Trump signed a Memorandum for the United States Trade Representative directing that the U.S. withdraw as a signatory to the TPP; withdraw from TPP negotiations; and “begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.” The President’s Memorandum further stated: “it is the intention of my Administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals.”
While the USTR Memorandum did not reference NAFTA specifically, the future of the agreement has been discussed by Administration officials. At his confirmation hearing before the U.S. Senate’s Commerce, Science and Transportation Committee, Commerce Secretary-designate Wilbur Ross said that it would be logical for the United States to address NAFTA first in order to solidify relationships with Canada and Mexico before dealing with other jurisdictions. With respect to specific NAFTA provisions, Ross testified that “all aspects of NAFTA will be put on the table.”
We assign great weight and importance to Secretary-designate Ross’ testimony, as he will play a key role in the Trump Administration’s trade initiatives alongside the USTR and the White House National Trade Council. Ross testified that he viewed reciprocity as a “fundamental principle” of trade – one which he observed was “mostly honoured in the breach by some of our major trading partners.” The concept of reciprocity, particularly as it relates to market access for US goods and trade deficits, must therefore be viewed as a central tenet of US trade policy going forward.
A second, and more troubling, Trump Administration trade initiative proposed last week related to the potential imposition of a 20% border tax on imported goods from certain countries including Mexico. The idea for the border tax was raised in a meeting with Republican lawmakers, and later confirmed by the White House Press Secretary. White House Chief of Staff Reince Priebus subsequently described the border tax measure as one of a “buffet of options” the Administration may consider to deal with trade deficits and expenditures related to the Mexico border wall.
Any tax measure, including a border tax, cannot be unilaterally imposed by the president and must be passed by Congress. Consequently, various impacted stakeholders have begun to engage with Congressional leaders to outline how various types of border tax measures could result in a loss of U.S. jobs and disrupt supply chains. In addition, former Obama Administration USTR Michael Froman has noted that any border tax could contravene U.S. trade obligations under NAFTA and the WTO – making the United States vulnerable to retaliatory measures.
(North) America first
In addition to providing a greater sense of the principles and priorities that will guide the Trump Administration’s trade policies, Mr. Ross’ confirmation hearing testimony also hinted at a shrewd advocacy strategy for Canadian stakeholders concerned about the inherent risks associated with any NAFTA renegotiation or border tax: The customer is always right. Mr. Ross indicated that he viewed the United States as being a ‘customer’ to those ‘vendor’ countries with whom they have a trade deficit – adding “they must treat you, as their largest customer, […] with respect.”
As has been widely noted, including by Prime Minister Trudeau himself, Canada is the top export destination – meaning the largest customer – for 35 of the 50 U.S. states including critical Trump swing states such as Michigan, Wisconsin, Pennsylvania, Ohio, Iowa and Florida. The list also includes Vice President Mike Pence’s home state of Indiana. Moreover, these 35 ‘vendor’ states are represented in Congress by such powerful elected officials as House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, and Senate Minority Leader Chuck Schumer.
The 35 states are also represented on the Senate Finance Committee which has jurisdiction over matters related to reciprocal trade agreements by such influential Senators as: Sen. Grassley (R-IA); Sen. Crapo (R-ID); Sen. Roberts (R-KS); Sen. Thune (R-SD); Sen. Isakson (R-GA); Sen. Portman (R-OH); Sen. Toomey (R-PA); Sen. Burr (R-NC); Sen. Stabenow (D-MI); Sen. Nelson (D-FL); Sen. Menendez (D-NJ); Sen. Carper (D-DE); Sen. Cardin (D-MD); Sen. Brown (D-OH); Sen. Bennett (D-CO); Sen. Casey (D-PA); Sen. Warner (D-VA); and Sen. McCaskill (D-MO).
At the state level, 26 of the 35 ‘vendor’ states are led by Republican governors – and, importantly, President Trump won 23 of those 35 states in the 2016 election. Canadian businesses and governments must embrace the ‘customer-vendor mindset’ espoused by Secretary-designate Ross, as well as the truism that ‘all politics is local’, to engage and educate U.S. officials with respect to how trade with Canada creates and sustains American jobs. This is a crucial channel to deliver Canada’s message as President Trump will listen to Americans first and foremost.
To the extent that Secretary-designate Ross testified that the “number one objective” and “number one priority” of the Trump Administration’s trade policy will be to expand and increase exports – which he described as the best way to deal with the U.S. trade deficit – Canada can, and must, leverage its considerable clout as the primary export market for a significant majority of the United States. To do so, Canadian stakeholders from both the public and private sectors must connect with impacted U.S. businesses and work with them to immediately engage U.S. lawmakers.