Former Officials: USMCA Sunset Negotiations to Put Pressure on Canada, Mexico

Speaking during a Washington International Trade Association webinar last week, former USTR general counsel Steve Vaughn told the audience that Trump's threats of hiking tariffs on Chinese goods to 60% and imposing a 10% tariff on all imports should be taken "very, very seriously."

Vaughn said, "If you look at what he said in 2016, he talked about trade a lot, and when he got elected, he pretty much did what he said he would do."

However, Vaughn argued that while Trump does want to lower the trade deficit with all countries that export more to the U.S. than they buy in U.S. imports, the tariffs are equally important as a form of leverage to negotiate market access opening trade deals.

"Unless you have some way to get leverage on these countries to get them to come to the table, you're not going to get any significant deal, in my opinion," Vaughn said, and he blamed what he called the bad terms in the Trans-Pacific Partnership on an unwillingness to twist arms.

During the Trump administration, "we did trade deals with China, Japan, Korea, Canada and Mexico," he said.

The China phase one deal paused escalation of tariffs, but analysts say China did not buy the quantities of exports it promised it would. The Korea deal was tweaks to the existing free trade agreement; the Japan mini deal was similar to TPP provisions lowering tariffs on both sides, with some politically sensitive areas, like autos, left out.

The Canada and Mexico agreement, of course, was the shift from the NAFTA to the USMCA. That includes a sunset clause, and those discussions will come in 2026, though no country can exit USMCA for 10 years after that.

The WITA moderator asked if the USTR under Trump would be more aggressive in those discussions than under Biden.

Kelly Ann Shaw, a former career staffer at USTR who served as a negotiator for USMCA in the Trump White House, said that being a trade negotiator under Trump is "a lot more fun" than under Obama, "because he does follow through on a lot of those threats."

She said the USMCA review would be more robust than if Biden is re-elected. "You’d see a lot more pressure on both Mexico and Canada," she said. "That negotiation would be a lot more dynamic."

She said she expects it to address -- and seek to block -- the possibility of Chinese firms investing in Mexico and producing automobiles or parts in that country and exporting them tariff-free into the U.S., as well as "fix a number of other issues."

She acknowledged that many companies are nervous about what this renegotiation could mean for the USMCA.

Vaughn said that while the negotiations would address how the three economies interact with China, "I don't think it would be limited to a few issues." He said he'd expect the U.S. to bring up issues it wasn't able to get in the USMCA negotiations, and added that members of Congress always have requests on agricultural market access.

Greta Peisch, who recently left the general counsel job at USTR, disagreed that a Trump USTR would conduct a more robust negotiation than a Biden one. She said under a second Biden administration, discussions would cover all the issues Shaw and Vaughn raised, as well as Chinese steel that undergoes processing in Mexico and is exported under trade benefits, and auto rules of origin. She said the U.S. would be asking "whether Canada has really lived up to the bargain" on opening its dairy market to U.S. exports.

"I think there would be a long list, a lot of consultation with Congress and stakeholders, and a really robust negotiation," she said.

Under a second Biden administration, there would not be any more interest in what USTR Katherine Tai has termed "twentieth century trade agreements" that lower tariffs, the panelists agreed.

But Peisch said the evolution in trade policy would be to spend more time working with allies to "use trade to shore up these other objectives we have," whether that's working together to confront Chinese overcapacity, or trying to use trade tools to address climate change. She also mentioned building a more sustainable critical minerals supply chain.

The moderator asked Shaw if the global arrangement on steel and aluminum -- which aims to have the EU and the U.S. jointly address non-market oversupply and erect barriers to metals made at higher carbon intensities -- would be abandoned under a second Trump administration.

Shaw said both administrations approve of those goals, but said, "I do think we’d approach it from slightly different angles."

Shaw said that Biden's trade policy is fairly consistent with Trump's. "Both administrations are comfortable with tariffs," she said, adding: "The Trump administration is going to take a bigger swing." She said under Trump, there could be more fluctuations in tariff rates, and he might use tariffs for a broader set of policy goals.