Monthly Archives: March 2018

Trump Secures Trade Deal With South Korea Ahead of Nuclear Talks

The United States and South Korea formally announced the trade agreement in a joint statement on Wednesday, and said that it “represents important progress in improving U.S.-Korea trade and economic relations.”

 merlin_135114333_660f2cd2-3f34-4a4e-bc98-21cf804e596e-master768President Trump scored his first significant trade deal this week, securing a pact with South Korea that represents the type of one-on-one agreement that Mr. Trump says makes the best sense for American companies and workers.

The deal opens the South’s market to American autos by lifting existing limits on manufacturers like Ford Motor and General Motors, extends tariffs for South Korean truck exports and restricts, by nearly a third, the amount of steel that the South can export to the United States. Mr. Trump used his threat of stiff steel and aluminum tariffs as a cudgel to extract the concessions he wanted, helping produce an agreement that had stalled amid disagreements this year.

But winning the deal may have had more to do with the geopolitical realities confronting the United States and South Korea as America embarks on tricky nuclear discussions with North Korea. The United States cannot afford a protracted trade standoff at a moment when it needs the South as an ally.

The trade deal came as the Chinese state news media reported that North Korea’s leader, Kim Jong-un, made an unannounced visit to Beijing to meet with President Xi Jinping weeks before planned summit meetings with American and South Korean leaders.

The political success of the trade agreement — and its ability to be replicated in other negotiations — is not guaranteed. Many countries have reacted coolly to Washington’s pugilistic approach to trade, viewing the president’s preference to punch first and negotiate later as counter to global interests.
President Emmanuel Macron of France lashed out at the approach on Tuesday, saying he was frustrated by the seemingly coercive negotiation tactics coming from Washington. “We talk about everything, in principle, with a friendly country that respects the rules of the W.T.O.,” Mr. Macron said. “We talk about nothing, in principle, when it is with a gun to our head.”

The implications in the United States will depend on how well Mr. Trump and his allies are able to sell the deal’s direct benefits to voters in midterm elections in the fall. They did not succeed in doing so in a recent special election in Pennsylvania, where a Democrat won in a district that should have been especially receptive to Mr. Trump’s argument about trade and tariffs.

Stephen K. Bannon, Mr. Trump’s former chief strategist, said the president’s political team “must get on the ground and make sure working people understand the direct economic benefits that come from these measures — get it from being academic to simple.”

The deal with South Korea, he said, “is a big victory resulting from the president’s smart tariff policies.” The agreement is also a victory for a president whose most ardent campaign supporters were animated in part by a promise that Mr. Trump would fight for them against an international free-trade establishment that they believe had robbed them of jobs and depressed their wages.

As a candidate, Mr. Trump had repeatedly threatened to withdraw from trade deals he said were unfair to the United States and its workers — or even rip them up. Even as recently as last September, associates of the president made it clear that he was willing to withdraw from trade negotiations with South Korea if he thought the result would be unfair.

Mr. Trump has also made clear his disdain for the multicountry trade agreements that the United States has long championed. One of his first moves as president was to pull out of what was then the 12-nation Trans-Pacific Partnership, an agreement that President Barack Obama had helped solidify.

On Tuesday, supporters of Mr. Trump’s protectionist approach to trade cheered the new pact as a victory for American workers and the dawn of a new era in globalization.

“The agreement with South Korea to better level the playing field on steel and autos is an encouraging sign that the administration’s trade strategy is achieving results,” said Scott N. Paul, the president of the Alliance for American Manufacturing. “We believe the deal’s steel provision will be as effective as a tariff in achieving the goals of strengthening our domestic industry and ensuring it can supply America’s security needs.”

Through the agreement, South Korea — the third-biggest exporter of steel to the United States in 2016 — is permanently exempt from the White House’s global tariffs of 25 percent on steel. In return, South Korea agreed to adhere to a quota of 2.68 million tons of steel exports to the United States a year, which it said was roughly equivalent to 70 percent of its annual average sent to the United States from 2015 to 2017.

The deal also doubles the number of vehicles the United States can export to South Korea without meeting local safety requirements to 50,000 per manufacturer. However, trade experts said that American companies had not come close to meeting their existing quota last year, and that American carmakers had not done enough to tailor their products for South Korean consumers, who prefer smaller vehicles. The revised agreement does ease environmental regulations that American carmakers face when selling vehicles in South Korea and makes American standards for auto parts compliant with South Korean regulations.

Importantly for the Trump administration, the agreement extends tariffs on imported South Korean trucks by 20 years to 2041. Those tariffs were set to phase out in 2021, which officials said would have harmed American truck makers.

The deal will also establish a side agreement between the United States and South Korea that is intended to deter “competitive devaluation” of both countries’ currencies — which can artificially lower the cost of imports bought by consumers — and to create more transparency on issues of monetary policy. Administration officials suggested that this new type of arrangement was likely to be replicated in other trade deals, though they acknowledged that it was not enforceable.

Senior White House officials trumpeted the addition of the currency provision to the negotiations, which would seek to prevent South Korea from reducing the value of its currency to make its goods cheaper abroad and export more to the United States. In a report published in October, the Treasury Department declined to label South Korea a currency manipulator, but placed it on a “monitoring list” for its currency practices and large trade surplus with the United States.

However, the effect of the currency agreement may be mostly symbolic, since it was signed in a side deal to the pact to avoid a lengthy legislative approval process. Unlike other provisions of the official agreement, the currency provision is not enforceable through panels that typically settle disputes, or through officially sanctioned retaliation, the usual method for policing trade deals.

The Obama administration had fought for a similar currency provision to be included in the Trans-Pacific Partnership. On automobiles, the biggest source of trade tensions between the countries, the negotiation delivered modest victories that were likely to be welcomed by American carmakers who have long sought to sell more cars in South Korea. It also smoothed customs and regulatory procedures that American businesses say have made it harder to sell goods in the country.

From The New York Times

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The steel elephant in the room at NAFTA Round 7

THE STEEL ELEPHANT IN THE ROOM AT NAFTA ROUND 7: The seventh round of talks to renegotiate NAFTA is set to wrap up in Mexico City today with the three countries having taken incremental steps forward on some lower-level, technical issues — but with trade negotiators, government officials and industry representatives alike acknowledging that the looming threat of U.S. tariffs on steel and aluminum has overshadowed any progress that was made.

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“Every single meeting we had started with 232 and not NAFTA,” one U.S. business source in Mexico City told Morning Trade, referring to President Donald Trump’s announcement on Thursday that he planned to levy tariffs of 25 percent on steel imports and 10 percent on aluminum imports to protect U.S. national security interests. “It was referred to as the elephant in the room multiple times.”

 After Round 6 ended in Montreal with negotiators feeling hopeful that countries had finally begun to engage and work toward compromises on some of the pact’s more contentious chapters, Round 7 has felt “anticlimactic,” another business source said. That’s in part because of the tariff news, which several sources said has “taken up a lot of energy” in Mexico City and required an inordinate amount of bandwidth from negotiating teams that were already stretched thin.

But the feeling of anticlimax also stems from the fact that some of the more contentious issues, most notably automotive rules of origin and investor-state dispute settlement, were only lightly discussed at the senior-negotiator level this round because of scheduling issues. Auto rules will be discussed during an intersessional round expected to be held in Washington before Round 8, while investment issues were mostly discussed the week before Round 7 began.

Overall progress report: Many of those involved in the talks are quick to point out progress that was made in areas such as good regulatory practices, a chapter that negotiators closed on Thursday, as well as on sanitary and phytosanitary measures and telecommunications. Roughly half of the chapters are now between 80 and 90 percent complete, a source close to the talks said. Others described the objective of Round 7 as “trying to clear out the underbrush,” in the hopes that it will help negotiators show flexibility on thornier issues.

Still, much of the progress is still so low-profile that it’s making few waves outside of individual negotiating rooms. At briefings on the talks, “I feel like I’m trapped in an episode of Groundhog Day,” one congressional aide said, referring to the fact that the discussion often focuses on minute steps forward on lower-level issues. “It does kind of make me wonder, at what point will there be a breakthrough?”

IT’S MONDAY, MARCH 5! Welcome to Morning Trade, where your host is thinking that after a weekend filled with clear blue skies and 75-degree days here in Mexico City, she could get used to covering NAFTA talks that linger on until 2019, or 2020, or 2021… Any trade tips or news out there as we wind down Round 7? Let me know: mcassella@politico.com or @mmcassella.

BRACING FOR FIREWORKS AT ROUND 7 FINALE: The three NAFTA ministers — U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo — are slated to sit down this morning for a series of bilateral gatherings followed by a trilateral meeting and press conference, which is scheduled to kick off around 3:15 p.m. Eastern.

The major open question going into the day’s events is whether President Donald Trump will follow through on tariffs on steel and aluminum and just how forcefully both countries, but Canada in particular, will broach the subject either behind closed doors or at the press conference.

“I can’t imagine a scenario in which it doesn’t come up,” a Canadian source close to the talks told Morning Trade. Freeland, who quickly denounced the planned tariffs last week as “absolutely unacceptable,” discussed the matter with Commerce Secretary Wilbur Ross on Friday and has also been in contact with EU Commissioner for Trade Cecilia Malmstrom, the source said.

Will there be NAFTA partner exemptions? Both Canada and Mexico have tried to make the case that they should be exempt from any tariffs levied for national security reasons, a point that U.S. lawmakers who traveled to Mexico City for meetings on the sidelines of the seventh negotiating round also echoed.

“Blanket tariffs that also sweep up fairly traded steel and aluminum, especially with trading partners like Canada and Mexico — they should be excluded from this tariff,” House Ways and Means Chairman Kevin Brady (R-Texas) told reporters in Mexico City.

“This is an ally,” added Rep. Bill Pascrell, top Democrat on the Ways and Means’ subcommittee on trade, referring to Mexico and Canada. “If we can’t make an exception there, then how are we going to get a NAFTA deal?” Read more from the lawmakers here.

A BLEAK OUTLOOK FOR 232 CARVE-OUTS: Trump, in spite of other countries’ best efforts, appears unlikely to exempt any nations from his proposed tariffs, a point two of his top advisers underscored on the political Sunday show circuit.

“As soon as he starts exempting countries, he has to raise the tariff on everybody else,” White House trade adviser Peter Navarro said in a combative interview on “Fox News Sunday.” “As soon as he exempts one country, his phone starts ringing from the heads of state of other countries.”

Asked about potential exemptions for U.S. allies on ABC’s “This Week,” Ross said Trump has had conversations with a number of world leaders but that “as far as I know he’s talking about a fairly broad brush.” More here.

Trump himself showed no signs of changing his mind, tweeting on Sunday night: “We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. Sorry, it’s time for a change!”

Midterm backlash? Republicans are now beginning to worry that the trade war Trump could ignite if he doesn’t narrow or soften his tariff stance could undermine the GOP’s effort to keep their majorities in Congress in the midterm elections.

Members of the party had planned to counter the president’s unpopularity by running primarily on economic issues, particularly the increasingly popular tax overhaul, but the steel and aluminum tariffs — as well as potential penalties on European cars, which Trump threatened on Saturday — could derail that strategy. POLITICO’s Rachael Bade and Burgess Everett have more here.

BUSINESS CHIEF: TARIFFS WON’T SOLVE CHINA PROBLEM: Trump’s tariffs are a poor tool to go after the real problem — China’s excess capacity — because steel imports from China only account for 2 percent of total imports, Josh Bolten, head of the Business Roundtable and a former White House Chief of Staff under George W. Bush, said on “Fox News Sunday.”

“You’ve got to get together with our friends and allies, who all face the same problem, put pressure on the Chinese jointly, because you can’t do this individually, and force the Chinese to reform their practices,” Bolten said.

But, Navarro argued, “this is not a China problem.” Instead, the blame rests with the total volume of imports from all suppliers, he said. Asked about the timetable for a final decision, Navarro told CBS’s “Face the Nation” that the proposed tariffs were being reviewed by the Office of Legal Counsel “for form and legality” and would probably be signed “by the end of the week.” But on another Sunday news show, he said it could slip into next week.

CANADA, MEXICO LOOK TO SIDESTEP U.S. ON PROCUREMENT: Outside of the tariff shadow hanging over the NAFTA talks, the seventh round saw little progress on any of the deal’s most contentious issues in part because none of the three countries appear to be willing to compromise. On government procurement, for one, Canada and Mexico have begun to explore bilateral options for ways to preserve access to each other’s markets while leaving out the U.S. out as the Trump administration continues to hold firm to a proposal that both countries find unworkable.

Washington has for months been pushing a “dollar-for-dollar” market access proposal, which both Ottawa and Mexico City argue would severely limit their businesses’ ability to land U.S. government contracts. Neither NAFTA partner will agree to any procurement offer that is not reciprocal, and the lead U.S. negotiator says he has not been given any instructions from USTR to soften the United States’ position — leading Canada and Mexico to search for a workaround.

“Now that we’re in the seventh round of negotiations, we don’t want to be stuck because one of the players refuses to let go of the ball,” a source close to the negotiations said. “So we are going to keep talking … and try to see to what degree we are able to work bilaterally.”

In Mexico City, there was no progress on the issue on a trilateral basis, because Canada and Mexico refuse to move forward on discussions until the U.S. shows some flexibility. “If we go down the slippery slope of restricting access, we might as well not have access at all to the U.S.,” the source said. Read more on procurement here.

LABOR’S NEW LEVERAGE IN NAFTA 2.0: Lighthizer’s push to insert an enforceable, high-standards labor chapter to draw Democratic support has begun to have a parallel effect: giving union and labor groups new power and leverage as the talks head toward the eighth round.

Labor is another issue that was not discussed in depth during the Mexico City round as U.S. negotiators worked back in Washington to revamp its initial proposal and “workshop” it among labor groups, sources close to the talks said. That step, on top of a meeting last month at the White House that Lighthizer spearheaded between Trump and U.S. labor leaders, has led some in the business community to pay more attention to labor groups’ demands as they recognize that the potential for wrapping up a deal could hinge on their support.

“There’s been increasing interest from the business community in understanding what’s going on with House Democrats and the labor chapter,” one source familiar with the negotiations said. “Not necessarily because they have views on what’s going on in the labor chapter or those elements … but people are starting to observe that this is going to be a critical element in being able to get a successful resolution.” Read the full story here.

Looking to Trump for a breakthrough? Trump’s aggressive rhetoric toward Mexico has made him few friends south of the border, but he may be the Mexican worker’s best shot at getting a bigger paycheck. Sabrina Rodriguez explores the labor talks from the Mexican perspective here.

THE SUNNY SIDE OF THE NAFTA ROAD: Among the most optimistic visitors to Mexico City for Round 7 were Republican House members — led by Brady, the Ways and Means chairman — who spent the weekend meeting with senior officials from all three countries as well as members of the U.S. business community. In a brief roundtable with reporters late Sunday morning, Brady told reporters he was “encouraged” by what he had heard over the past few days of meetings and described “real progress on the nuts and bolts of this free trade agreement.”

“I gotta admit, coming here I had a lot of concerns about where this was going,” added Rep. Roger Marshall (R-Kansas). “There’s been so much progress in the last week or two … I’m excited. I’m very optimistic.”

ENERGY GETS A STANDALONE CHAPTER: NAFTA 2.0 will include a standalone chapter on energy, an addition that took Mexico and Canada a few rounds to get the U.S. to support, a source close to the negotiations confirmed. Over the last few rounds, there had been speculation over whether there would be a full energy chapter or whether energy-related issues would be addressed in other chapters. Both options will be realized.

The standalone chapter will focus on regional cooperation and integration, looking for “more interconnectivity across the networks of energy in North America,” the source said. However, hard obligations on energy can go in other chapters such as state-owned enterprise, government procurement and investment.

Adding a standalone chapter on energy will help codify into a multinational agreement significant changes that Mexico has made to allow foreign direct investment in its energy sector, Rep. Will Hurd (R-Texas) told Morning Trade in Mexico City. That will be, “ultimately, a good thing,” he said, adding that “being able to modernize how the rules and regulations around getting that molecule across the actual border is ultimately going to be helpful.”

“NAFTA, as a region, we have an opportunity to really be … the most important player when it comes to energy,” he said.

 

Trump’s steel and aluminum tariffs will now exempt most of US imports

When the Trump administration announced tariffs on US imports of steel and aluminum in the name of national security, America’s allies were shocked. They could be trusted with shared military intelligence, but not base metal production?

Many foreign diplomats seem to have prevailed upon the US with their objections. At a legislative hearing today in Washington, the top US trade official, Robert Lighthizer, told US senators that Argentina, Australia, Brazil, South Korea, and the EU would be exempted from the 25% tariff on steel and the 10% duty on aluminum. Including Mexico and Canada, which were exempted from the start, a majority of the US foreign supply of foreign steel, iron, and aluminum now comes from the exempted group.

A chart showing the breakdown of US imports of steel in 2017 by country.

The tariffs go into effect tomorrow. The countries that are still affected by the new policy include China, Russia, Taiwan, Japan, and India, among others.

From Quartz

1,000+ Civil Society Groups Outline Shared NAFTA Renegotiation Demands

An incredibly strong and diverse cross-sector collection of more than a thousand labor, environmental, family farm, consumer, civil rights, faith, small business, public health and community groups has sent a unified message that the North American Free Trade Agreement (NAFTA) renegotiation must prioritize working families, public health and the environment over corporate profits.

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As U.S. Trade Representative Robert Lighthizer testified on trade policy at a Ways & Means Committee hearing on March 21st, Citizens Trade Campaign sent a letter signed by 1,043 organizations to Congress outlining civil society’s shared criteria for a NAFTA replacement.

Pointing the loss of more than 930,000 American jobs certified as lost to NAFTA and falling Mexican wages, the letter outlines what is needed to replace the pact — currently under renegotiation between the United States, Mexico and Canada — with a new agreement that addresses the huge disparity in labor rights, wages and environmental standards between the three countries for the benefit of working families, the environment and public health continent-wide.

Among other things, the letter demands an end to Investor-State Dispute Settlement (ISDS) and the addition of strong labor and environmental standards with swift and certain enforcement.

“The administration’s tariffs on steel and aluminum imports are an important first step in protecting the basic industries essential to our national security, but what’s still missing in the debate over trade policy is the need to effectively address the ongoing labor abuses and sweatshop wages rampant among some of our key trading partners.  NAFTA’s renegotiation is an opportunity to finally get it right.  This is even more crucial in light of the direct incentives for outsourcing in the recently passed Republican tax cuts,” said Leo Gerard, International President of the United Steelworkers.  

“Our members have never liked NAFTA, and they know that every week that goes by, NAFTA continues to help corporations outsource more middle class jobs, while also putting health, environmental standards and highway safety at risk.  We need to hold this administration accountable to creating a new deal that puts people and the planet ahead of narrow corporate interests,” said James P. Hoffa, General President of the International Brotherhood of Teamsters.

“NAFTA has not worked for North American workers. Thousands of U.S. and Canadian manufacturing jobs have been shipped to Mexico since NAFTA was implemented over the objections of working people. And Mexican workers have not benefited either.  They are still subject to violations of their basic human rights to form real unions and still earn exceedingly low wages,” said Robert Martinez, Jr., International President of the International Association of Machinists & Aerospace Workers.  “A new NAFTA must benefit workers in all three nations and include international labor standards based on ILO Conventions that are based on fundamental human rights. Trade policy must benefit everyone, not just a handful of multinationals who outsource our work anywhere in the world where workers can be exploited.”

“President Trump and the Republican Congress have not lived up to their promises to bring good jobs back to the United States. In fact, with the new tax law that provides incentives for corporations to send jobs overseas, they have done the opposite,” said Christopher Shelton, President of the Communications Workers of America.  “It’s time to get serious about fixing our broken trade system and bringing jobs home by committing to a total rewrite of NAFTA. The new agreement must put a priority on raising wages and standards for all jobs, including call center and information technology jobs, so that American workers can compete on a level playing field. And it must remove the corrupt ISDS system that provides special protections for multinational corporations while leaving working people with no way to fight back when these same companies destroy their communities.”

“While U.S. agricultural trade boasts an overall trade surplus, that agricultural trade surplus represents less than 5 percent of the overall U.S. trade deficit, representing lost jobs, lowered wages, and less economic activity in rural communities. We need a renegotiated NAFTA that creates a fair trade framework for the benefit of family farmers, their communities, and all of America,” said Roger Johnson, President of the National Farmers Union.

“If a NAFTA replacement is to achieve majority in support in Congress the investor-state dispute settlement regime that incentivizes American job offshoring and empowers foreign corporations to attack domestic laws must be eliminated. Of course the corporate lobby defends ISDS, among those who now say it must go are the Republican-majority National Conference of State Legislatures, the National Association of Counties, the National League of Cities, U.S. small business organizations, and hundreds of the nation’s leading legal and economics professors. Stark criticism of ISDS has come from voices as disparate as the staunchly conservative U.S. Supreme Court Chief Justice John Roberts, Reagan-era associate deputy attorney general Bruce Fein, the pro-free-trade libertarian Cato Institute think tank, progressive U.S. Senator Elizabeth Warren (D-Mass.), Nobel laureate economist Joseph Stiglitz, unions and environmental groups,” said Lori Wallach, Director of Public Citizen’s Global Trade Watch.  

The letter urges Congress to demand that the NAFTA renegotiation:

  • Stop outsourcing and raise wages by adding strong labor and environmental standards with swift and certain enforcement;
  • Eliminate NAFTA terms that promote the outsourcing of Americans’ jobs, including Investor-State Dispute Settlement (ISDS) provisions;
  • Protect consumers and the environment and ensure a level playing field for U.S. businesses, farmers and workers by ending NAFTA rules that threaten food safety and food labeling;
  • Make medicine more affordable by eliminating NAFTA rules that increase costs;
  • Ensure a fair playing field for American job creation by adding strong, enforceable disciplines against currency manipulation;
  • Create American jobs and reinforce improved labor and environmental standards by strengthening “rules of origin” and stopping transshipment;
  • Protect health and the environment by requiring that all imported goods and all services and service providers meet U.S. standards and add a specific safeguard for domestic environmental, health, labor and other public interest policies;
  • Boost the rural economy by overhauling NAFTA rules that harm family farmers; and
  • Make the NAFTA renegotiation process transparent and participatory.

The letter warns that, “In the absence of a binding and easily-enforced agreement based on these critical measures, Mexican workers will continue to be horribly exploited, American jobs will continue to be outsourced, the environment will continue to be degraded and the wages for workers in all three NAFTA countries will continue to decline.”

A PDF of the letter, with the complete list of signing organizations, is online at: https://www.citizenstrade.org/ctc/wp-content/uploads/2018/03/NAFTAOrgSignOnLetter_032118.pdf

 

 

 

 

Canadian Prime Minister Urged to Protect Jobs, Wages & Human Rights

BY 

CTC

– FEBRUARY 9, 2018POSTED IN: CALIFORNIANEWS FROM THE FIELD

 

As Canadian Prime Minister Justin Trudeau met with business executives, politicians and others to discuss economic ties between the U.S. and Canada in February 2018, fair trade advocates representing a coalition of California-based labor, environmental and human rights organizations gathered outside events in San Francisco and Simi Valley to urge the Prime Minister to prioritize the addition of strong labor and environmental standards to the North American Free Trade Agreement (NAFTA).

“After six major rounds of NAFTA negotiations, the Trump administration still hasn’t agreed to the tough labor and environmental provisions needed to protect jobs in the U.S. and Canada, to protect human rights in Mexico and to raise wages continent-wide. Working families throughout North America need Prime Minister Trudeau to stay true to his pledge to fight for these issues in any NAFTA replacement,” said Will Wiltschko, director of the California Trade Justice Coalition.

NAFTA is currently being renegotiated between the United States, Canada and Mexico, and was expected to be a major subject during Trudeau’s multi-city visit to the United States.

Activists held signs reading “Progressive Trade Means Labor & Environmental Rights,” “ISDS Is A Corporate Power Grab” and “Prime Minister: Put People Over Profits.”

Replace NAFTA protesters were also present outside a Trudeau event at the University of Chicago earlier in the week.

The actions received coverage in Canadian media and were highlighted on social media by Parliamentarians.

 

 

 

 

Six ways ‘free trade’ deals could be made more equitable.

Here are six ways ‘free trade’ deals could be fixed to help share the benefits of globalisation more equitably.

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Donald Trump’s bellicose policies, including new tariffs on steel and aluminium, have raised fears of a worldwide slide into protectionism and trade conflict. The US president’s unilateral and xenophobic approach to trade policy is reprehensible and dangerous from any perspective. But many progressives feel conflicted about Trump’s actions.

After all, he is challenging business-friendly trade deals (including the TPP and Nafta) which labour, social and environmental advocates have opposed for years. And while his policies will clearly make life worse for working and poor people in the US, he is nevertheless speaking to their actual experience: unlike free trade defenders, who continue to pretend that the tide of globalisation has lifted all boats.

Established policy elites still ridicule Trump’s belief that trade deals have contributed to the misery and inequality afflicting working class communities in America (and, for that matter, Australia). For them, globalisation must produce winners but no losers. And they trot out theoretical economic models (premised on assumptions of full employment and costless adjustment) to buttress their case. They concede the gains from trade may not have been evenly shared. But they deny that globalisation has anything to do with the erosion of living standards experienced in so many once-prosperous working communities.

This patronising denial is precisely what got Trump elected in the first place. It’s not that depressed industrial towns in Pennsylvania, Ohio, and Wisconsin (the states that put Trump over the top) didn’t “share in the benefits” of free trade. It’s that their economic viability was destroyed by it.

Acknowledging that globalisation produces losers as well as winners, allows us to imagine policies to moderate the downsides of trade – and purposefully share the upsides. The next step is to make a crucial distinction between trade and “free trade”. The former is the pragmatic day-to-day flow of goods and services between countries. The latter is the set of specific, lopsided rules embodied in the plethora of trade and investment agreements enacted over the last generation.

Proof of the dissonance between trade and “free trade” is provided by Australia’s lacklustre trade performance over the last two decades. Exports of actual goods and services constitute a smaller share of total GDP today, than at the turn of the century. Sure, the volume of resource exports has surged – not surprisingly, since that’s what our trading partners wanted. But resource prices have been shaky, and meanwhile our other value-added exports flagged badly. If the goal of all the free trade agreements signed since then (a dozen) was to boost Australia’s exports, they failed miserably. But of course, that wasn’t the goal: the deals were actually intended to cement a business-friendly policy environment, even in sectors that have nothing to do with international trade.

Progressives can endorse mutually beneficial international trade, and even international flows of direct investment, without accepting the lopsided, business-dominated vision of “free trade” agreements. In fact, a progressive approach to managing globalisation would actually boost real trade more effectively: by supporting purchasing power on all sides, and avoiding the contractionary race-to-the-bottom unleashed by current free trade rules.

Here are six key principles central to a more hopeful and inclusive vision of globalisation.

1. Preserve the power to regulate

Free trade deals assume government intervention in markets (regulating prices, service standards, investment, and more) is inherently illegitimate and wasteful; they establish “ratchet” rules to limit regulation and public ownership, and lock-in deregulation over time. The failure of market competition in so many areas – in Australia’s case, including electricity, vocational education, and employment services – reaffirms that trade deals must not inhibit governments from regulating businesses, no matter where they are owned.

2. Eliminate investment preferences

“Free trade” deals proffer all kinds of preferences and rights for businesses and investors that have no necessary connection at all to actual trade. Chief among these are the unique quasi-judicial rights and powers granted to corporations (such as investor-state dispute settlement panels); these are an affront to democracy. Progressive trade policy would abolish these preferences, and subject corporations and their owners to the same laws and processes the rest of us face. Similarly, progressive trade deals would aim to relax monopoly patent rights (for drug companies and others), rather than strengthening them.

3. Manage capital and currencies

Foreign direct investments in real businesses that produce actual goods and services can certainly benefit host communities, but only so long as those operations are subject to normal public interest and regulatory oversight. Retaining the capacity to regulate foreign investment is essential to capturing maximum benefits from foreign investment. On the other hand, volatile, speculative flows of financial capital and foreign exchange have less upside, and more downside. In particular, rules should prevent the common practice of suppressing exchange rates to gain artificial advantage in international competition.

4. Social clauses that mean something

Most “free trade” deals, the TPP included, feature token language about protecting labour and environmental standards. These provisions are window-dressing: responding to fears that global competition will spark a downward spiral in social standards. Typically these clauses simply commit signatories to follow their own laws – with no requirement that those laws are decent to start with. Progressive trade deals would have safeguards that are enforceable, including requiring participating jurisdictions to respect universal standards or lose preferential trade rights. Where trade partners have different standards (such as, for example, levying varying degrees of carbon pricing), border adjustments must be permitted so that trade competition does not undermine environmental and social progress.

5. Balanced adjustment

Trade and investment flows never automatically settle at a balanced position – even if a “level playing field” in labour and environmental standards was actually achieved. That’s because competition always has uneven effects, producing both winners and losers. Countries that experience loss of employment and production through global competition (a possibility denied by free trade theory, but commonplace in practice) must be supported with measures to safeguard domestic employment, facilitate adjustment, and boost exports. Chronic surplus countries (like China and Germany) must recycle excess earnings into expanding their own imports, thus bearing a fair share of adjustment – rather than forcing deficit countries to do all the heavy lifting.

6. Active, inclusive domestic policies

Opposition to trade liberalisation is relatively mild in the highly trade-exposed social-democratic countries of Europe: like the Nordic countries, Germany, and Netherlands. Their extensive networks of social protections provide average workers with reasonable confidence they won’t be economically tossed aside for any reason: whether trade competition, or some other disruption. That’s why a key component of progressive trade policy must be a general commitment to social protection, inclusion, and job creation. A general context of security and equity better facilitates adjustments of any kind, in response to any source of change. Indeed, collecting healthy taxes from successful industries, and reinvesting them in priorities like infrastructure, training, and communities, is precisely how to harvest the much-trumpeted gains from trade – and pro-actively share them throughout society. That’s much more feasible than hoping those benefits will somehow trickle down of their own accord.

Claims by policy elites that international trade is the engine of all progress are vastly overblown. Our well-being mostly depends on what we do with our skills, energies and innovation right here at home. But real international trade and investment, properly managed, can certainly make a contribution to prosperity. And progressives can advance a vision of a more balanced, inclusive globalisation that has nothing in common with Donald Trump.

Published on The Guardian.

Jim Stanford is an economist and the director of the Centre for Future Work at the Australia Institute

Takeaways from the Tariff Debates

In the context of the tariffs on steel and aluminum that the Trump administration announced in the past weeks, a lot has happened.

unnamedExemptions were given to Canada and Mexico, the former which is the top importer of steel to the United States. Gary Cohn, Trump’s top economic advisor and one of Wall Street’s favorite free trade advocates, resigned. Paul Ryan and the most ardent free trade advocates in both the corporate and political worlds freaked out at the new measures. Here are some of the main takeaways we have gathered from the slew of coverage and analysis that has come out since the tariffs were announced.

1. Free traders freaked out and everyone found out. The free trade establishment hates tariffs and immediately set off the alarms that Trump would begin a trade war that would negatively affect the US economy. From New York Times opinion pieces to declarations by Paul Ryan, there was a significant effort to demonstrate that tariffs are an illogical tactic for achieving economic improvements. The tariffs are challenging the ideological advantage that free traders have maintained in the United States for so long and which was reaching its apex with the Trans-Pacific Partnership (TPP).

2. But Wall Street knows Trump is a capitalist and they are protected. When Gary Cohn announced his resignation, the stock markets had a small dip reacting to the news and since then has jumped back to its regular patterns. However, Wall Street is not freaked about Trump at all. A Politico report by Ben White on why Wall Street is not worried about Trump detailed how after each major presidential scandal of this administration, Wall Street has had a small dip and then picked up quickly. The article reads:
If there is a unified field theory for why Trump’s highly unusual presidency doesn’t ruffle Wall Street, it’s this: Beyond all the noise and bluster, he’s mostly a standard-issue Republican. At the agency level, his appointees have championed fewer regulations on every conceivable industry, rolling back or postponing one Barack Obama-era restriction after another. Trump also signed a bill slashing the corporate tax rate nearly in half, fattening corporate profits, and unleashing dividend payments and stock buybacks, all of which help drive share prices higher[…] The trade wars with Mexico and China have not materialized. At least so far, he has mostly tinkered with trade deals like NAFTA, and applied relatively small-time tariffs on things like solar panels and washing machines.”
3. Economic nationalism leans into war-mongering. The steel and aluminum tariffs are not going to, on their own, inspire a trade war. Tariffs are common economic practice around the world which have been mobilized to protect certain industries that are important for the domestic economy. However, Trump’s economic nationalism always seeks to blame problems faced by people in the United States on people considered to be ‘outsiders’ to the ‘nation’. Domestically this refers to people of color and immigrants and internationally Mexico and China, amongst others, depending on the issue. The announcement of the tariffs on their own will not create a trade war, not to say that there will not be retaliation from other countries. Yet, Trump is appealing to a base which desires to see the unapologetic revival of American imperialism for which wars are ‘easy to win’, as Trump tweeted about trade wars. Since the tariffs were announced, Canada and Mexico were given exemptions and other countries were invited to negotiate terms on exceptions as well. There is an increasing discourse on war from the administration that, regardless of the veracity of the threat, is becoming a dangerous precedent of normalizing declarations of war.

4. The tariffs are as political as they are economic. Steel and aluminum industries are based in strategic states both for the mid-term elections in November and for the presidential elections in 2020. Ohio and Pennsylvania, for example, are battleground states that voted for Trump in 2016 and will continue to be contested for future elections. Just this week, Democrat Connor Lamb beat the Trump-supporting Republican in a race for a seat in the House of Representatives in a district where Trump won by double digits. The Republican establishment cannot assume that Trump’s presidential victory will translate into support later this year or in 2020. Thus far, Trump’s policies has had no real influence upon these industries, so the tariffs themselves are a concrete policy that the administration is taking that is in the interests of people that work in the steel and aluminum industries. Both Democrats and Republicans in these states were strong supporters of the tariffs, both union members and industry leaders supported them as well. Likewise, left-leaning Democrats like Elizabeth Warren and Bernie Sanders have come out in their favor, while also including other critiques to Trump’s trade policy. The status quo around free trade’s opposition to tariffs is being questioned by people all throughout the political spectrum and gaining votes in key states will depend on candidates’ ability to engage issues of trade.

5. Bottom-line: We must defeat corporate trade both in its free trade and economic nationalism models. Neither Trump Trade nor free trade like the TPP or the original NAFTA will solve the basic economic problems that affect working people and the environment. Workers’ jobs and well-being will not be resolved with mere tariffs, we need a living wage, we need healthcare for all, access to quality free education, we need to get rid of right-to-work legislation, we need a Labor Department which has the resources and political will to protect all workers, we need to get rid of corporate tax breaks and loops which further rampant inequality. We need public infrastructure and services that attend to the needs of everyone. We need a model of international trade that puts the conservation of the environment and reversing the trends of climate change before the interests of the oil industry. It is our job to continue to propose an alternative model, trade for people and planet.

Trade for People and Planet

Senators write to Trump about NAFTA

As negotiations on the North American Free Trade Agreement (NAFTA) continue, we are writing to underscore the importance of fundamentally rewriting NAFTA to eliminate its incentives to outsource American jobs and to level the playing field by adding strong labor and environmental provisions that meet fundamental international standards, include swift and certain enforcement and raise wages.

signsMillions of Americans haven’t seen a pay increase in years and can’t find better paying jobs due in large part to unfair trade deals like NAFTA. Instead of leveling the playing field, NAFTA makes it easier for companies to outsource jobs to Mexico so they can pay employees less and pollute more. Since NAFTAS implementation, Mexico’s already low manufacturing wages are down 9% in real terms and US wages are flat, while the price of everything from childcare to housing to a college education has risen. Unless we rewrite NAFTA it will keep giving the green light to corporations to outsource American jobs, pushing down wages for middle class and working families.

Read this Senators NAFTA letter to Trump 2-2018 

Signed by Bernie Sanders, Kirsten Gillebrand, Elizabeth Warren, Edward J Markey, Jeffrey A Merkley.

Fanaticism and fantasy drive purported TPP ‘benefits’

So-called “free trade” agreements are continually advertised as creators of jobs, yet jobs are lost and wages decline once they go into effect. As representatives of the 12 countries participating in the Trans-Pacific Partnership gather this week in New Zealand to begin their final push for it, the usual unsubstantiated claims are being put forth.

tpp-protest-oct-2015Why is this so? I mean beyond the obvious answer that such claims are propaganda in the service of corporate elites and financiers. Corporate-funded “think tanks” that pump out a steady barrage of papers making grandiose claims for “free trade” deals that are relied on by the political leaders who push these deals require some data, no matter how massaged. One organization prominent in this process is the Peterson Institute for International Economics, which has issued rosy reports in expectation of deals like the North America Free Trade Agreement — for example, it predicted 170,000 new jobs would be created in the U.S. alone in 1995 and that the Mexican economy would grow by four to five percent annually under NAFTA.

One way to look at this is that the Peterson Institute is to “free trade” agreements as the Heartland Institute is to global warming. Heartland began as a Big Tobacco outfit issuing reports denying links between smoking and cancer. As late as 1998, Heartland President Joe Bast claimed that there were  “few, if any, adverse health effects” associated with smoking and boasted to a Phillip Morris executive that “Heartland does many things that benefit Philip Morris’s bottom line, things that no other organization does.”

Heartland later began specializing in global-warming denial, receiving $676,500 from Exxon Mobil alone between 1996 and 2006; after which it stopped identifying its contributors. Mr. Bast seems to have no shame, writing that “Most scientists do not believe human activities threaten to disrupt the Earth’s climate” in an article describing global warming as a “scam.” In fact, 97 percent of climate scientists agree that human activity is behind global warming.

It is this same attitude toward the truth that pervades papers predicting wondrous results from “free trade” agreements. In contrast to the Peterson Institute’s rosy projections, the first 20 years of NAFTA proved to be a lose-lose-lose proposition for Canada, Mexico and the United States. Almost 5 million Mexican farmers have been displaced with inflation-adjusted wages in Mexico barely above the level of 1980; U.S. food prices have risen 67 percent since NAFTA took effect and two-thirds of displaced manufacturing workers in the U.S. have been forced to take work with reduced wages; and Canadians suffered drastic cuts in government benefits while their environmental laws were reversed in the wake of corporate challenges.

Rosy reports rest on ideology, not real world

The Peterson Institute is at it again, first claiming the Trans-Pacific Partnership (TPP) will result in gains of US$1.9 trillion, and in a new report once again making extravagant claims even if scaled back. In its latest report, the Institute claims there will be no net job losses, while annual income in the U.S. would increase by $131 billion. These sorts of predictions are routine, and not the product of any single corporate organization. How is it that, all actual experience to the contrary, these sorts of calculations are presented with a straight face?

The political economist Martin Hart-Landsberg, in his book Capitalist Globalization: Consequences, Resistance, and Alternatives, writes that economic models that presume wondrous benefits from “free trade” agreements assume, inter alia:

  • There are only two inputs, capital and labor, which are able to move instantaneously but never cross national borders.
  • Total aggregate expenditures in each economy will be sufficient, and automatically adjust, to ensure full use of all resources.
  • Flexible exchange rates will prevent lowered tariffs from causing changes in trade balances.

Thanks to these starting points, Professor Hart-Landsberg writes:

“[T]his kind of modeling assumes a world in which liberalization cannot, by assumption, cause or worsen unemployment, capital flight or trade imbalances. Thanks to these assumptions, if a country drops its trade restrictions, market forces will quickly and effortlessly lead capital and labor to shift into new, more productive uses. And since trade always remains in balance, this restructuring will generate a dollar’s worth of new exports for every dollar of new imports. Given these assumptions, it is no wonder that mainstream economic studies always produce results supporting ratification of free trade agreements.”

Given the strong biases in favor of “free trade” agreements, all the more skeptical of the TPP we may be when we see the tiny gains forecast by the World Bank. Vietnam is expected to see the biggest boost among the 12 TPP countries, according to the World Bank forecast — a 10 percent gain in gross domestic product cumulative through 2030. In other words, less than one percent per year. As TechDirt summation of this report noted:

“So according to the World Bank’s figures, the US will gain an extra 0.04% GDP per year on average, as a result of TPP; Australia an extra 0.07% annually, and Canada a boost of 0.12% per year.”

If this is the best that promoters of corporate hegemony can come up with for the TPP, its likely effect will surely be dismal.

The vanishing “gains”

Jane Kelsey, a New Zealand law professor who has long sounded the alarm on the TPP, notes that even the slightly larger gain forecast for that country would actually constitute a statistical blip that may or may not actually exist. She writes:

“[The] National [government]’s glitzy new ‘TPP fact’ page is bad wine repackaged in new bottles. Here’s a few facts they don’t tell you. The projected economic gains of 0.9 per cent of GDP by 2030 are within their own margin of error, even before costs are factored in and disregarding unrealistic modelling.”

One of several blockades in New Zealand on February 4 in protest of the TPP (photo via Real Choice NZ)

A more balanced investigation conducted by Tufts University researchers Jeronim Capaldo and Alex Izurieta led to the conclusion that the TPP, if enacted, would result in the loss of three-quarters of a million jobsthrough 2025, including 448,000 jobs to be lost in the U.S. alone. Canada, Mexico, Japan and Australia would each suffer jobs losses in the tens of thousands. The Tufts report concludes:

“The TPP would lead to higher inequality, with a lower labor share of national income. We expect competitive pressures on labor incomes, combined with employment losses, to push labor shares of national income further down, redistributing income from labor to capital in all countries. In the USA, this would exacerbate a multi-decade trend.”

Working people in the 11 other TPP countries would get to experience the stagnant wages and declining living standards that United Statesians have been treated to during the past three decades.

More than 330,000 manufacturing jobs are expected to be lost in the U.S. alone if TPP is passed, according to a separate calculation by the United Steelworkers, and Unifor estimates that 20,000 Canadian jobs in auto manufacturing alone are at risk.

If no gain, there will be pain for you

Underlying all this further tilting of the scales already heavily weighted toward corporate money and power is the “investor-state dispute settlement” provision, whereby multi-national corporations can sue governments to overturn laws and regulations they don’t like under the excuse that measures to protect safety, health or the environment constitute a “taking” of their expected profits — not even actual profits. The secret tribunal that will hear corporate complaints (the same as the one used under NAFTA) must assume the corporation’s claim is true under some circumstances.

Canada, because it has higher standards than do the U.S. or Mexico, is most frequently sued under NAFTA, although the Canadian pipeline company TransCanada has committed the latest outrage, suing the U.S. government for $15 billion because the Obama administration declined to permit the Keystone XL pipeline. TransCanada is suing for $15 billion even though it has spent $2.4 billion on the pipeline.

Although the governments of the 12 TPP countries are “signing” the agreement this week, that is a formality: The deal must still be approved by legislatures and implementing legal changes enacted.

The TPP would enter into force 60 days after all 12 signatories ratify it or, if that doesn’t happen within two years, in April 2018 if at least six of the 12 countries accounting for 85 percent of the combined gross domestic product of the original signatories have ratified the agreement. That 85 percent can’t be reached without the U.S. or Japan, effectively giving those countries a veto and thus placing extra responsibility on opponents in both those countries. It also can’t be reached if Canada, Australia and Mexico each fail to ratify, so opponents there can also stop it.

The TPP, even more so that previous deals, has very little to do with trade and much to do with solidifying corporate control over life, arguably the most significant erosion of what is left of formal democracy yet. Regardless of where you live, the TPP can be defeated if we continue to organize. And once the TPP is sent to the trash heap, it will be time to go on the offensive to roll back existing trade pacts.

From the Systemic Disorder Blog 

Lori Wallach and Michael Hudson Debate Trump’s Plan to Impose Tariffs

“Trade wars are good, and easy to win.” That’s the message President Trump tweeted on Friday, sending shockwaves across the globe and sparking fear of impending economic volatility.

Screen Shot 2018-03-06 at 1.26.32 PMOn Thursday, world stock markets tumbled after Trump announced he plans to impose new tariffs on imports of foreign steel and aluminum. The new tariffs—25 percent on steel and 10 percent on aluminum—will benefit U.S. producers of the metals, while raising prices for companies that manufacture everything from cars to airplanes to high-rise apartments. Prominent Republicans and business leaders have denounced Trump’s plan, saying the tariffs will hurt the manufacturing industry and U.S. competitiveness. Trump’s announcement has also prompted concerns that other countries will impose retaliatory tariffs while challenging U.S. protectionism at the World Trade Organization. For more, we host a debate. Lori Wallach is the director of Public Citizen’s Global Trade Watch and author of “The Rise and Fall of Fast Track Trade Authority.” Economist Michael Hudson is the author of “America’s Protectionist Takeoff 1815-1914.”

Lori Wallach said ” I wasn’t particularly surprised, though the question is whether he’ll follow through. It wasn’t managed in the most artful way. And where I stand on it is, this is an enforcement action similar to what’s been done fairly systematically, not only in steel. There are hundreds of these kinds of orders outstanding. Because President Trump is generally despicable, he’s getting piled on, and a huge attack by a lot of folks who want to and have been trying to declare a “trade war” is going to be started by him, when, in fact, in 2002, President Bush did the same thing, only with 30 percent steel tariffs.

And here’s the background of it. There is a systematic overproduction of steel in the world because other countries subsidize. We’re one of the most free trade, open countries, so we end up as the “buyer of last resort.” So we get flooded with the subsidized, overcapacity steel. Just in the last number of years, over ten—sorry, 100,000 workers, mainly union, in these industries have lost their jobs.

So what we’re doing now is nothing that’s particularly high-tech. You know, it’s not coming from Wakanda, it’s coming from our trade laws. We’re putting a shield up to basically bounce off all this incoming, to basically say, “Basta! We are not buying this stuff, you guys, really.” For 10 years we’ve been talking to all these countries, saying, “Stop subsidizing. Stop dumping all this stuff on us,” and they’ve totally ignored us. So, now we’re doing this sort of trade two-by-four. It’s temporary. This is not the new tariff, but it’s sort of a “Yo! Slow down. We were talking to you. You didn’t listen.” And so now there will be a temporary block, where we bounce this stuff off. And the rest of the market, all the other countries, have to basically stop oversupplying, stop subsidizing.

Michael Hudson said “Well, in many ways, what she said is correct. But America has always been the most protectionist country in the world for itself. It wants free trade for other countries. And Lori is quite right when she sees there’s a disconnect between what economists say and what politicians actually do. International trade theory is probably the silliest branch of modern economic theory. It’s just a mass of assumptions. And if what the textbooks say were true, America never could have become the major manufacturing power. Britain couldn’t have. Germany couldn’t have. Every country that is an industrial power has got rich by subsidizing its industry and pursuing a protectionist policy.

However, what Trump is doing is the opposite of all the protectionist logic that every country has followed. The whole idea of protectionism is to increase your expensive, high-technology manufactures by getting low raw materials. Trump is doing the opposite. But he’s raised aluminum prices by 40 percent in the last month, 60 percent since the summer. Steel prices are up 33 percent. So, this is going to squeeze the prices that manufacturers have to pay that make things out of aluminum and steel. There’s no increase in tariffs on buying foreign tin cans or foreign steel products, so the American manufacturers will be squeezed.

But foreign countries now have a great benefit. Germany, China, other countries are thinking, “Now, under the rules of international trade, when there is an illegal tariff put on, we get to retaliate.” And they’re going to look around and say, “What do we want to respond to? What is the major American competition that we want to knock off the table?” And they’re going to put tariffs on whatever they think the competition is, whether it’s Boeing airplanes or bourbon or blue jeans or other things.

So, what Trump’s policy does is a travesty of protectionism. It merely squeezes. And the pretense of all of this is that if he gives more money to the steel and aluminum companies, they’ll invest more and hire more labor. But they’re not going to do that at all. Not a single new steel factory is going to be built. Not a single new aluminum factory, because aluminum is made out of electricity, and America is a high-cost electricity country, compared to Iceland, where Alcan produces much of its aluminum, in Canada. So, what you’re doing is enabling the steel and the aluminum companies to use their increased profits for share buybacks and to pay dividends, but they’re not going to build new factories. There is not going to be any trickle down. So, Trump has made a travesty out of protectionist doctrine, as well.”

See the whole debate on film, or read the transcript on the Democracy Now website.

NAFTA: We’re running out of time.

President Trump’s top trade negotiator sent Mexico and Canada another warning on Monday: We’re running out of time.

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Round 7 of the NAFTA talks concluded in Mexico City with grim comments by US Trade Representative Robert Lighthizer. He said the United States is prepared to walk away from the three-way negotiation and seek separate deals with Mexico or Canada.

Everyone better act fast, he warned.

“Now our time is running very short,” Lighthizer said at a press conference, standing next to his counterparts from Mexico and Canada. “I fear that the longer we proceed, the more political headwinds we will feel.”

Lighthizer alluded to political events that he said will complicate negotiations. Mexico has a presidential election in July, and the campaign — and the rhetoric that comes with it — kicks off in a few weeks. Canada has provincial elections later this year, and the US midterms are in November.

All these events stand in the way of a final agreement and could prolong negotiations, Lighthizer argued.

Lighthizer’s remarks seemed to be another attempt by the United States to pressure Canada and Mexico into a deal. Earlier Monday, Trump himself said on Twitter that he would exempt the two countries from steel and aluminum tariffs only if they agreed to a NAFTA deal soon.

We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must..

Neither Canada nor Mexico signaled it would change course. Canadian Foreign Minister Chrystia Freeland, despite expressing optimism about progress in the talks, reiterated that Canada would retaliate against the United States if Trump applied tariffs on Canada.

In a call with Trump on Monday, Canadian Prime Minister Justin Trudeau “emphasized that the introduction of tariffs would not be helpful to reaching a deal on NAFTA,” according to a statement from Trudeau’s office.

Mexican Economy Secretary Ildefonso Guajardo also spoke optimistically Monday about an improving pace of progress in the NAFTA talks. But he told CNN last week that tariffs would have “tremendous consequences” for the US-Mexico trade relationship.

Lighthizer expressed disappointment that only six of the 30 chapters in NAFTA had been agreed upon after seven months of negotiations.

In Lighthizer’s view, negotiators have made only minimal progress on the most divisive issue, auto manufacturing. Freeland said the conversation around auto production rules “has been constructive.”

Round 8 of talks is expected to be held in Washington in April.