U.S. Seeks to Resolve Other Trade Disputes Amid China Impasse

05/17/19 06:57 PM EDT
By William Mauldin, Josh Zumbrun and Vivian Salama 

WASHINGTON -- With U.S.-China trade talks at an impasse, President Trump moved Friday to tackle festering trade disputes with U.S. allies and North American neighbors.

The White House released an order putting off a decision on proposed tariffs on imported cars and auto parts for about six months, giving the administration room to negotiate possible trade deals with the European Union and Japan.

Hours later, Mr. Trump said the U.S. had reached a deal to exempt Canada and Mexico from tariffs on steel and aluminum that were imposed last year. The action is expected to help clear one of the stumbling blocks for ratification of the U.S.-Mexico-Canada Agreement that was negotiated by the Trump administration last year.

The auto-tariff delay and the removal of metal duties on North American neighbors will silence some of the loudest criticism the Trump administration has faced from its own party.

"The biggest hurdle to ratifying USMCA has been lifted," said Senate Finance Committee Chairman Chuck Grassley, a Republican from Iowa, where pork exports faced retaliatory tariffs from Mexico. Mr. Grassley is expected to spearhead any Senate consideration of USMCA.

The latest moves to delay or scrap tariffs come after negotiations on a U.S.-China trade accord broke down, leading both sides to escalate tariffs on each other's goods.

Mr. Trump said Chinese officials were trying to renegotiate previous commitments in the talks. The U.S. responded by imposing 25% tariffs on $200 billion in Chinese imports, up from 10%, and launching a process to put tariffs on nearly all remaining imports from China. It also issued an order barring sales of U.S. parts and services to Chinese telecommunications giant Huawei Technologies Co.

By doubling down on China and easing tariff threats with partner countries, Mr. Trump stands to boost his support in Congress as his administration courts lawmakers to ratify USMCA, the North American deal. As the 2020 campaign approaches, Mr. Trump is again taking the tough-on-China approach that helped him win election in 2016.

"Trump is focused on bringing the supply chain back to America and the industrial democracies," said former White House chief strategist Steve Bannon, a critic of Beijing. "That is exactly what he committed to the workers in the Rust Belt."

Senate Democratic leader Chuck Schumer (D., N.Y.), a frequent critic of Mr. Trump, praised the president's decision to delay action on auto tariffs. "The pressure must be strong on China, not on our allies who we should encourage to join us in confronting China," Mr. Schumer said in a tweet.

Business groups applauded the lifting of the steel and aluminum tariffs, which have raised costs for auto makers in the U.S. "This action delivers a welcome burst of momentum for the USMCA," said Tom Donohue, president of the U.S. Chamber of Commerce.

The United Steelworkers Union also voiced approval. "From Day One, we made it clear that the real problem isn't Canada or Mexico," said union president Leo Gerard.

"The administration is eager to try to get some deals done," said Miriam Sapiro, former acting U.S. trade representative in the Obama administration who now works at strategic communications firm Sard Verbinnen & Co. Still, ratification of the North American deal "depends on the administration's willingness to work with Congress in a meaningful way."

For passage of USMCA, Mr. Trump will need the support of a significant portion of Democrats in the House. On Wednesday, U.S. Trade Representative Robert Lighthizer met House Speaker Nancy Pelosi (D., Calif.) to discuss a possible path forward for USMCA.

Mrs. Pelosi, whose caucus is deeply skeptical of Mr. Trump, has the ability to call a vote to sidetrack House consideration of USMCA if the administration submits the pact to Congress under special rules that allow expedited consideration.

She and other Democrats have called for changes in the agreement with Canada and Mexico to allow for tougher enforcement of the pact's new labor rules.

The Trump administration so far has said it would address enforcement concerns separately, including through the law that Congress would pass to implement the trade agreement.

"It used to be Congress versus the administration; now it feels like the administration is at least coming around to the Republican point of view" on trade, a Democratic congressional aide said, adding that "it's going to be hard for them to work with Democrats in a productive way."

Critics of the administration also point out that the delay in auto tariffs doesn't mean Mr. Trump won't later impose tariffs on the EU and Japan under a controversial application of a national-security law known as Section 232.

"These petulant threats will only make it less likely our allies will work with us to confront our collective challenges with China and to fix real trade problems," said Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee.

In the auto-tariff announcement, the Trump administration confirmed for the first time that the Commerce Department had concluded that U.S. auto research and development and manufacturing are "vital to national security," a determination that establishes a legal basis for Mr. Trump to impose sweeping tariffs.

The industry would have had relatively little ability to adjust supply chains quickly in response to tariffs, so auto makers expect tariffs would lead to sharp price increases.

Goldman Sachs economists laid out a scenario in a note Friday that they believe would result in only a 20% probability that Mr. Trump would restrict auto imports in the fall. "We believe the political risks related to retaliation against U.S. exports from trading partners and the potential financial-market impact would make auto tariffs at that point fairly unlikely," the economists wrote.

In a speech Friday to the National Association of Realtors in Washington, Mr. Trump hailed the deal with Canada and Mexico and promised support for U.S. farmers, who have lost sales to China as a result of the trade dispute.

"Just reached an agreement with Canada and Mexico, and we will be selling our product into those countries without the imposition of tariffs or major tariffs," Mr. Trump said. "Hopefully Congress will pass the USMCA quickly."

"Our farmers are going to do really well," Mr. Trump said. "Between that and the USMCA, our farmers are going to be very happy."

Farmers are facing retaliation from China as well as from countries that will still be hit by the steel and aluminum tariffs after Mexico and Canada are removed in coming days.

--Santiago Perez and Kim Mackrael contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com, Josh Zumbrun at Josh.Zumbrun@wsj.com and Vivian Salama at vivian.salama@wsj.com

 

(END) Dow Jones Newswires

May 17, 2019 18:57 ET (22:57 GMT)

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