Everything you need to know about US trade deals
September 4, 2019
2019 will likely go down as the year that trade dominated headlines.
The US is currently working on several deals with several trading partners. Some of those trade talks have made substantial progress; others, not so much.
Among all the news of increasing tariffs, trade wars, and various negotiations, it can be challenging to keep track of where things stand for each pending trade deal. Don’t worry, we’ve got your back.
Here’s your primer on the major trade deals the US is currently working on.
To say that trade negotiations with China haven’t gone as planned would be something of an understatement.
The two nations have been locked in a heated trade dispute for more than a year that has brought escalating tariffs, and increased tension. For a complete overview of what’s happened so far, check out our timeline of the US-China trade war.
In 2018, US goods and services trade with China totalled an estimated $737.1 billion, with a trade deficit of $378.6 billion. At the very least, this number isn’t expected to increase by the end of 2019.
Tariffs, tariffs, and more tariffs. Tit-for-tat measures from the US and China have overshadowed the trade negotiations. To date, US tariffs have been implemented or are pending on $550 billion worth of Chinese products. China has implemented or announced plans to impose tariffs on $185 billion in American goods. And more tariffs are still on the way.
President Donald Trump said that, starting October 1, US tariffs on China will increase from 25% to 30% on $250 billion worth of imports already being taxed.
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Both countries are feeling the pinch from the increasing tariffs, and so is the global economy. In July, the International Monetary Fund again reduced its world growth outlook, which is already the lowest since the 2008 financial crisis, due to uncertainty from the trade dispute.
The trade conflict also took an alarming turn this past summer when the US declared China a “currency manipulator.” The designation was made the same day China’s currency, the yuan, dropped to its lowest level in more than a decade.
Don’t hold your breath that things will be resolved anytime soon.
Speaking to reporters shortly before the latest round of tariffs went into effect, Trump said the in-person negotiations between the US and China are still scheduled to happen “as of now.” Those negotiations will take place in Washington in September.
But the recent and rapid escalation of tariffs have led many to speculate that the US and China are moving further apart, making reaching a deal an increasingly distant possibility.
Back in July 2018, Trump and European Commission President Jean-Claude Juncker gave hope for trade relations between the US and EU when they announced a trade truce. In a joint statement, they said the relationship between the US and EU was going to enter a “new phase” that would involve “zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.”
Since then that optimism has dwindled, and trade talks between the UK and EU have made little progress.
US goods and services trade with the EU totaled nearly $1.3 trillion in 2018, representing the largest bilateral trade relationship in the world. Together, the US and EU economies account for about half of the global GDP and nearly one-third of world trade flows.
At the end of the G7 summit in France, Trump said negotiations with the EU have been difficult of late. But the President noted that he thinks the US will be able to reach a trade deal with the bloc without imposing threatened tariffs on auto imports.
“We’re very close to maybe making a deal with the EU because they don’t want tariffs. I think we’re going to make a deal with the EU without having to go that route,” the President said August 26.
Trump is due to decide whether to impose duties on auto imports in November. But there’s already some tariff tension between the US and EU. Last year, President Trump imposed tariffs on steel and aluminum, including metals from the EU. The EU retaliated with 25% tariffs on more than $3 billion worth of American products in June 2018.
The two sides are also locked in an ongoing dispute regarding aircraft subsidies that dates back to 2004. The US has accused the EU of providing illegal subsidies to Airbus, while Europe has argued the same against the US and Boeing. Both sides have threatened to impose new tariffs because of the dispute, which could lead to another trade war.
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Even without the aircraft subsidy conflict, trade talks have been hindered from the beginning, with both sides publishing conflicting negotiating directives. The US wants agriculture included in any agreement, while the EU directives explicitly exclude agricultural goods.
However, the US and EU recently did reach an agreement that will triple American beef exports to Europe over the next seven years.
The impasse almost guarantees an agreement won’t be reached by the original November 1 target date.
Trump is reportedly planning to visit Germany soon, at the invitation of outgoing German Chancellor Angela Merkel. Merkel has stated that Germany wants the US and EU to reach an agreement as soon as possible.
After starting negotiations in April 2019, the US and Japan recently reached a trade agreement “in principle.” Trump and Japanese Prime Minister Shinzo Abe made the announcement August 25, 2019, on the sidelines of the G7 summit in France.
According to the US Trade Representative (USTR), US goods and services trade deficit with Japan was $56.8 billion in 2018, while the trade surplus was $297.5 billion.
Details on the preliminary agreement are still slim. US Trade Representative Robert Lighthizer said the expected deal focuses on industrial tariffs, agriculture, and digital trade.
Under the proposal, Japan would open its market to more American agricultural goods, including beef, pork, dairy products, wine, and ethanol. Trump also said that Japan would purchase significant amounts of corn from the US.
The agreement does not eliminate the 2.5% tariffs on Japanese vehicles or auto parts, which Japan had asked the Trump administration to remove in previous negotiations. However, once finalized, the deal is expected to eliminate the possibility that the President could implement a 25% tariff on Japan’s autos and auto parts, which he has threatened to do.
Final details of the agreement are currently being worked out. The two leaders are expected to officially sign the deal on the sidelines of the United Nations General Assembly meeting in September.
After 14 months of intensive and often fractious negotiations, there was much excitement when the US, Canada, and Mexico signed the new trade deal that will replace NAFTA.
But ratifying the United States-Mexico-Canada Agreement (USMCA), which was signed by leaders on the sidelines of the November 2018 G20 summit in Argentina, hasn’t been easy. Of the three countries, only Mexico has approved the new trade agreement so far.
According to the USTR, US goods and services trade with Canada totaled around $714.1 billion in 2018, while the trade surplus was $7 billion. With Mexico, US goods and services trade totaled approximately $671 billion in 2018, and the trade deficit was $72.7 billion.
USMCA’s been touted as a deal that will “modernize” NAFTA “into a 21st century, high-standard agreement.” One of the significant changes included in USMCA is greater access to the Canadian dairy market to help ease problems with overproduction of milk in the US. The agreement also kills Canada’s Class 7 pricing strategy, which made it cheaper for Canadian dairy processors to buy domestic ultra-filtered milk. American farmers said the pricing system blocked their imports and damaged world prices.
Under the new agreement, 75% of auto content must be manufactured in North America, an increase from 62.5% under NAFTA. By 2023, 40-45% of auto content must be made by workers earning at least $16 per hour. And USMCA has a provision that allows each country to sanction others for labor violations that affect trade.
USMCA also comes with an expiry date. Once ratified, the new deal will run out after 16 years under a provision known as the “sunset clause.” What’s more, the three countries are required to review the deal every six years and decide whether or not to extend it.
In May 2019, a deal was reached to lift US tariffs on steel and aluminum from Canada and Mexico. The tariffs were seen as a major hurdle for USMCA’s ratification.
So, when will the “most momentous agreement in U.S. history” come into effect? At the moment, no one knows. In the US, there’s no indication as to when Congress will vote on USMCA.
The Trump administration was pushing Congress to approve the new agreement before the August recess. But that didn’t happen because Democrats want changes to the agreement’s labor, environmental, pharmaceutical, and enforcement terms. House Democrats have been working with USTR officials to reach a consensus. Those talks are reportedly making progress, but an agreement on revisions has yet to be approved.
The issues of contention could be dealt with through side agreements, which is how the Trump administration wants them addressed, or by reopening the whole deal and going back to the negotiating table.
The 2020 US presidential election means there’s a ticking clock for ratifying USMCA. Plus, the campaign period for Canada’s federal election, taking place in October, is about to get into high gear. And once the campaign starts, it won’t be possible for Canada to approve the agreement until after the election.
Canada, which still has to ratify the deal, has been waiting to see what the US does with USMCA, meaning the election will inevitably delay Canada’s ratification of the agreement, or worse, usher in a new government with a desire to renegotiate.