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Trade Tensions are Not Easing

05/22/2019

CHICK-NEWS and EGG-NEWS previously commented that with regard to trade agreements the White House has too many balls in the air at the same time. After unilateral withdrawal from the Trans Pacific Partnership and consequential exclusion from the restructured Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and also renegotiation of NAFTA to establish USMCA, the U.S. has progressed to a state of malignant uncertainty with most trading partners including the E.U. Delaying imposition of tariffs on automobile parts from Japan and the E.U. will hopefully expedite unilateral agreements with Japan and the E.U. As with most White House initiatives, a six-month deadline has been imposed, kicking the can down the road while negotiations continue.

Given that businesses have investment periods measured in years and crops have an annual cycle, a six-month moratorium on trade disruption is hardly cause for complacency. It is however encouraging that the counsel of moderates within the Administration and the patience of our allies have resulted in concessions which have brought us back from the brink of absolute trade disruption. Certainly rescinding the tariff on steel and aluminum from Mexico and Canada has increased the prospect of ratifying the USAMCA to replace NAFTA. The unfortunate decision by the Administration on May 30th to impose a progressive tax on Mexico to coerce that nation to restrict migration blindsided negotiators and Congress. This action of dubious legality represents a serious impediment to ratification of the USMCA and threatens U.S. agriculture as a result of inevitable retaliation by Mexico.

Neil Bradley, Chief Policy Officer at the US Chamber of Commerce stated “The continued threat of tariffs on cars and auto parts only creates more uncertainty and is weakening our economy”. Cecilia Malstrom, the E.U. Trade Commissioner stated “We completely reject the notion that our car exports are a national security threat”.

In coming months, Robert Lighthizer, the U.S. Trade Representative will be extremely busy negotiating concurrently with Tokyo, Brussels and Beijing to achieve equitable trade agreements that comply with both economic reality and narrow political imperatives. He certainly does not need complications as a result of impulsive decisions that invoke the Law of Unintended Consequences.