Eurasia Group | New US tariffs on Mexico endanger USMCA

New US tariffs on Mexico endanger USMCA

5 June 2019
The Mexican, Canadian, and US flags. REUTERS. The Mexican, Canadian, and US flags. REUTERS.
The United States-Mexico-Canada Agreement (USMCA) was signed last November by representatives of the three countries as a replacement for the NAFTA treaty that has tightly bound their economies for decades. But what had initially seemed to be the first big win for President Donald Trump's combative trade policies has been called into question by an increasingly uncertain outlook for approval in the US Congress. As Eurasia Group expert Todd Mariano explains, Trump's recent threats to slap tariffs on Mexico to force it to clamp down on border crossings has heightened these uncertainties.

Risks for Republicans

Trump issued his new tariff threat on the same day (30 May) that Vice President Mike Pence was in Canada promoting USMCA and US Trade Representative Robert Lighthizer sent a draft Statement of Administrative Action to Congress (the next procedural step for USMCA). The mixed signals being sent by the Trump administration make it politically risky for congressional Republicans to push the president's agenda and undermines key officials' ability to negotiate with Congress.

New ammunition for Democrats

The move to advance the USMCA caught congressional Democrats off guard, as Lighthizer had told them they would have weeks to work with his office on issues of concern. Instead, advocates of a more confrontational approach to ratification appear to have convinced Trump to increase pressure on Democrats to vote on an agreement they have not fully had a chance to amend. Yet House Speaker Nancy Pelosi retains many options to slow or halt consideration of the trade deal. The procedural miscommunication plus the Mexican tariff threat will give Democrats additional political cover to oppose the agreement. Tariffs will not only vex economically orthodox Republicans but also House Democrats from border and port districts.

Congressional backlash

Beyond partisan considerations, the abruptness of Trump's policymaking will spark new wariness in Congress, whose members are concerned with protecting the US-Mexico commercial relationship and having the president supersede their authority. Senator Chuck Grassley, who chairs the committee with jurisdiction over trade agreements in the Senate, stated plainly that imposing tariffs on Mexico would jeopardize USMCA, a position that has been backed by many other Republicans—notably Majority Leader Mitch McConnell—and business groups. The tariff threat will also inject new energy into congressional debates on presidential authority over trade. Court challenges to Trump's use of the International Emergency Powers Act (IEEPA) to impose the new tariffs are not likely to succeed, given the president's broad powers under the law. Congress could overturn his decision with a joint resolution, but that remains unlikely given GOP deference to the president on border and immigration issues. Congress moving to change the IEEPA authority would be a more potent lever but would require a longer and difficult legislative process.
The view from Mexico and Canada

Mexican President Andres Manuel Lopez Obrador has consistently signaled since he was elected that he is in favor of the USMCA deal and wants to have it approved as soon as possible so he can focus on the rest of his agenda, which is more important to him. But Trump's announcement will impede him from advancing on this issue and will force the government to focus first on preventing the implementation of the tariffs. If the tariffs are not imposed or do not last for very long, the Lopez Obrador administration will likely try to move forward on passing the USMCA in the Mexican senate. However, the longer the delay, the more difficult the process will become, as congress shifts its focus to legislation that is a higher priority for the president.

In Canada, there were already several risks for swift ratification even prior to Trump's tariff announcement, including a tight parliamentary schedule ahead of federal elections in October. There are now less than four weeks until both chambers of parliament rise for summer break, with several high-profile bills awaiting approval. Lawmakers could be recalled over the summer, an idea floated recently by the chair of the House International Trade Committee. However, the move would be rare and unlikely at this point, especially given the impending elections and reduced chances that the USMCA is ratified in the US.
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Eurasia Group United States Director Todd Mariano.
Todd Mariano is Eurasia Group's United States director. With years of experience examining the intersection of Washington and Wall Street, he helps clients understand how US economic policy and national security affect financial markets and corporate investment.