Trade Tensions Continue

December 13, 2018

President Trump could announce as early as this week that the United States will withdraw from the current North American Free Trade Agreement if Congress fails to approve the revised U.S.-Mexico-Canada Agreement (USMCA).  Getting the USMCA through the House of Representatives may be difficult, and the President’s move would be aimed at gaining leverage over recalcitrant lawmakers by threatening the economic disruption that would follow an outright end to NAFTA.  For example, Mexican tariffs on almost all agricultural products would increase substantially, likely reducing U.S. sales there.

On another trade front, Trump and Chinese President Xi Jinping agreed that higher tariffs on Chinese goods will be delayed until March 1 and that China will buy undetermined amounts of U.S. products.  Many trade observers doubt the complex and contentious issues dividing the two countries can be resolved that quickly.  U.S. Trade Representative Robert Lighthizer this week said March 1 was “a hard deadline,” implying it would not be extended.  If not, tariffs on Chinese goods that are now 10% would immediately rise to 25%, and China would likely again hit U.S. products, especially agricultural goods.