The Road to 2020

Trump’s Trade Woes Cloud His Re-Election Chances

The new NAFTA is going nowhere, China’s not budging, and farmers are going under.

Johannes Eisele/AFP/Getty Images/Foreign Policy illustration
Johannes Eisele/AFP/Getty Images/Foreign Policy illustration

With the United States enjoying what he calls an “unprecedented economic boom,” U.S. President Donald Trump often acts as if he has all the time in the world to focus on his “paramount” priority: “reversing decades of calamitous trade policies,” as he put it in Tuesday’s State of the Union address.

But Trump may not have the luxury of time. Midwestern farmers are going bankrupt in greater numbers as their export markets vanish. Both Democrats and Republicans in Congress are rising in rebellion. And Trump will almost certainly be forced to cave to a slew of demands from both sides for changes to the slightly renegotiated North American Free Trade Agreement he wrapped up last summer. There are widespread warnings from economists, meanwhile, that the U.S. economy could begin to sputter headed into 2020, hindered by Trump’s tariff wars.

And things are likely to get worse. Trump faces a self-imposed March 2 deadline to reach a sweeping trade deal with China, or he says he’ll raise tariffs on Chinese imports, inflicting more pain on U.S. farmers and other industries. Trump’s top economic advisor, National Economic Council chairman Larry Kudlow, said Thursday that there was a “pretty sizable distance” to go on a China trade deal. And after a flurry of optimism in late January, when Trump said he planned to meet with Chinese President Xi Jinping, a senior administration official told CNBC on Thursday that a meeting between Trump and Xi was “highly unlikely” before the March deadline, even though Trump will be in nearby Vietnam days before, attending his summit with North Korean leader Kim Jong Un. (The two sides could, however, decide to extend the deadline.)

Thus the president finds himself in the uncomfortable position of trying to fulfill one of his key campaign pledges—fixing America’s trade problems—while both Democrats and his own party hold him back and with time running down before he kicks off his 2020 re-election campaign.

Even so, some trade experts say, Trump could manage to find his way to a successful conclusion on both the China trade talks and the new NAFTA—if he shows a willingness to compromise that until now has been largely absent in both negotiations.

Perhaps most perilous of all for the president, Republican support is waning, especially as farmers suffer in key Midwestern and Plains states from a shrunken China market and Beijing’s reprisal for U.S. tariffs on hundreds of billions of dollars’ worth of goods. According to a report from the Federal Reserve Bank of Minneapolis last November, more than twice as many farm operations in those states have filed for bankruptcy than was seen in 2014.

“The trend is still definitely going up,” Ronald Wirtz, the author of the Fed report, told Foreign Policy. “The trend was clearly in place before the trade war, but it’s one more factor for farmers that were already grappling with lower commodity prices, so it’s taken one more major market away from them.”

John Newton, the chief economist for the American Farm Bureau Federation, said his association still supported the revised NAFTA and Trump’s confrontation with China, but he conceded that things would get more difficult for farmers with the Agriculture Department’s 2018 assistance program, which helped prop up prices, winding down (though the new $867 billion farm bill will help provide additional crop insurance and emergency aid).

“We’re not under any impression that there’s another round of trade A [assistance] payments coming, but I don’t know what the administration is considering,” Newton said. “We’re running out of runway for some commodities. Soybeans is the pressure point. Sixty percent of our soybeans exports went to China. One-third of every bushel went to China. Cotton’s feeling it, pork’s feeling it, but soybeans is the pressure point.”

Trump has billed his replacement for NAFTA, the United States-Mexico-Canada Agreement (USMCA), as a brand-new agreement; in truth, it contains most of what NAFTA contained, with additional provisions lifted from another trade agreement Trump rejected, the Trans-Pacific Partnership, a 12-nation pact hashed out during the Obama administration.

But after spending a few months closely studying USMCA, both Democrats and Republicans in the House and Senate say the accord contains provisions that make it worse than NAFTA in some ways, and it has virtually no chance of passing in its current form.

Some leading Republicans also say Trump doesn’t have the constitutional right to pull out of NAFTA on his own, as he’s threatened to do if USMCA isn’t passed. And even if he did, that would dramatically worsen the pain on U.S. companies and workers before 2020 by potentially reimposing tariffs and trade restrictions that existed before NAFTA.

According to one Republican Senate aide who’s working on the issue, USMCA likely couldn’t even be brought to a vote without major changes. “Even if you were to put it on the floor, I’m not sure there’s enough Republicans who will team up to support it,” the aide said.

House Speaker Nancy Pelosi, a California Democrat, said at her Thursday news conference that she was still open to supporting a revised USMCA but insisted that provisions would have to be added to enforce labor provisions, including relative wage rates in the United States and Mexico. Democrats also want to change provisions that make it easier for U.S. pharmaceutical companies to charge high prices for drugs because of extended patent protection.

The right has its own objections. Republican senators such as Bill Toomey of Pennsylvania, John Thune of South Dakota, and Marco Rubio of Florida object to some of the very provisions that the Democrats embrace, such as mandated higher wages for auto workers. Republican free traders also oppose the USMCA’s sunset provision—under which the parties must opt to stay in after a 10-year countdown period—because that discourages investment. NAFTA had no sunset provision. Republicans are also deeply unhappy with loosened investor dispute settlement protections that are part of the new accord.

For a president who promised quick trade victories, simply managing to maintain a trade deal that has been in place for a quarter of a century might prove a challenge. He’s being asked to wrench apart one of his administration’s ostensible achievements—from opposite directions. The White House has so far resisted tweaking the accord.

“By and large I think our concern is: What is the administration’s plan for getting to a destination, actually coming to an agreement that addresses the whole panoply of issues,” one senior Democratic House aide said. “The way he’s gone about it has created a great deal of pain and suffering, especially in the agriculture industry. And for causing all this pain he might not come to any progress.”

Still, there might be daylight for Trump as he bids for re-election if he proves willing to make concessions to all sides—first to Democrats and Republicans over USMCA, and then to the Chinese over Beijing’s refusal to surrender large parts of its long-time model for technology development, which includes subsidies to state-owned enterprises and appropriation of U.S. intellectual property.

Bill Reinsch, a China trade expert and former senior Commerce Department official, said he’s “marginally optimistic” that U.S. Trade Representative Robert Lighthizer can make a deal with Beijing that would include long-term pledges to open market access to U.S. firms and buy American goods, as long as Trump is willing to accept changes to IP acquisition that “are more than cosmetic but don’t address some of the problems. And I don’t see them [the Chinese] giving ground on state-owned enterprises. For them to do what we want them to do would undercut the party ‘s control.”

On USMCA as well, says Lori Wallach, director of Global Trade Watch,  “there is an obvious path to passage to agreement by a large bipartisan majority if the administration works with Democrats in the House to get rid of the big pharma giveaways and strengthen the labor and environmental standards. The choice is different for Republicans and many of the constituencies  they represent: It’s between no NAFTA and new NAFTA. And for them no NAFTA is not an option.”

But there are few signs of such flexibility by the president as yet.

Michael Hirsh is a senior correspondent at Foreign Policy@michaelphirsh

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