A Day of Action Sets the Tone for Future Trade

Posted by Gary M. Barraco on Thu, Jan, 26 2017 @ 9:45 AM

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trump tpp nafta future trade.jpgOn his first full weekday in office, President Donald Trump swiftly abandoned the Trans-Pacific Partnership (TPP) with an executive order, standing by his Inauguration speech that “now arrives the hour of action." President Trump also signed an executive order to renegotiate the North American Free Trade Agreement (NAFTA). The orders fulfill the pledge Trump made in mid-November to immediately make dramatic changes and put “America first” on his first day in office.

During last year’s campaign, Trump sharply criticized TPP, touting it as a bad deal for American workers. Although the deal was not approved by Congress when Trump took office, the decision to withdraw at the start of his administration signals his approach to global trade upheaval.  It also sends signals to the world that a new order of protectionism is imminent; causing other countries to react in the same manner – drawing comments from other major economies.

President Obama pushed to get the TPP trade deal signed before he left office. Obama and his supporters argued the pact would open growing foreign markets to American businesses, but Republicans said it would benefit wealthy corporations at the expense of workers and the environment. President Trump’s withdrawal from TPP amounts to a drastic reversal of decades of economic policy in which presidents of both parties have lowered trade barriers and expanded ties around the world.

Had TPP moved forward, it was expected to open up trade among 11 Pacific Rim nations that were part of the deal — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — which together account for roughly 40 percent of the global economy.

The immediate impact of both directives is hardly noticeable. TPP was "dead on arrival" (Trump’s arrival).  Mexico’s President and the Canadian Prime Minister have already declared their willingness to collaborate in a re-negotiation of the decades-old NAFTA. This trade agreement was first negotiated by the elder President George Bush and pushed through Congress by President Bill Clinton. NAFTA has been a major driver of American trade for nearly 20 years, but it has long been divisive with critics blaming it for lost jobs and lower wages.

The most important effects of Trump’s trade moves will likely come in the medium-term, as the tone of trade renegotiation is set during meetings with Mexican and Canadian officials. Leading Mexican economic officials are booked to meet with members of the Trump administration this week, and the Mexican President will meet with Trump on January 31.

On the campaign trail, Trump called NAFTA “the worst trade deal the U.S. has ever signed” and vowed to renegotiate or rip it up. The rules governing the free trade agreement allow any country to withdraw simply by notifying other parties. This would start a 180-day clock to allow for new negotiations. If no new deal is reached by then, the accord would be dissolved.

Canada has stated it expects to keep its 1989 bilateral free trade agreement with the U.S. even if Trump withdraws from NAFTA. Both Presidents of Mexico and Canada are coordinating efforts to protect an economically integrated North America. News service AFP reported that in a call to Canadian Prime Minister Justin Trudeau, Mexico’s President Pena Nieto “stressed how important Mexico’s relationship with Canada is, as well as (the importance of) the free trade agreement and free flow of investment capital.” Both leaders “agreed to redouble efforts to continue fostering economic integration in North America.”

All signals show stakeholders are preparing for a NAFTA renegotiation - a lengthy, technical process to begin quickly and on the right foot. 

For global trade professionals, these shifts (and the many more to come) make it even more crucial to automate your supply chain and support it with up-to-date trade content to ensure compliance. Download American Shipper's report, A Duty to Save: Avoiding Missed Opportunities in Duty Management, to learn how to utilize free trade agreements and foreign-trade zones as part of your overall duty management strategy.

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Topics: Duty Management, Foreign-Trade Zones, Free Trade Agreements