Trump’s Push to Enact New Nafta Could Stall on Metals Tariffs

(Bloomberg) -- Donald Trump might have to drop tariffs on steel and aluminum if he wants his new North American trade deal to see the light of day.

U.S. lawmakers and business groups are joining Canada and Mexico in pushing the president to lift the so-called Section 232 levies on those nations as, essentially, a condition of enacting the trade deal Trump signed at the end of November. The tariffs took effect earlier last year and were immediately met with retaliatory measures.

There are growing warnings in all three countries, including from Republicans in Congress, that the deal's passage hinges on lifting the tariffs. The chief White House economic adviser, Larry Kudlow, and Agriculture Secretary Sonny Perdue have already acknowledged a push within the administration to eliminate the tariffs -- either entirely, or to replace them with quotas.

On Wednesday, Trump's trade czar also voiced concerns about the U.S-Mexico-Canada Trade Agreement. “The president wants me to get some kind of steel agreement if I can with Canada and Mexico,” Trade Representative Robert Lighthizer told lawmakers in Washington. “If USMCA doesn't pass, it would be a catastrophe across the country.”

Industry Pressure

The U.S. aluminum industry has been pressing key members of the House and Senate in recent weeks to lift the 10 percent tariff on imports, according to people familiar with the discussions. The business leaders cite shrinking margins and mounting fears that safeguards are crimping demand, at a time when fundamentals would support another strong year of sales. The industry has more meetings scheduled on the Hill this week and next week, according to the people, who asked not to be identified because the meetings are private.

A group of U.S. companies and business groups, known as the USMCA Coalition, this week also launched a new push to ratify the trade pact. The group includes the U.S. Chamber of Commerce, whose chief has called removal of the metals tariffs a “critical first step.”

Not all industries want the tariffs lifted. U.S. steel makers continue to support Trump's 25 percent tariff on the metal against allies like Canada, arguing they are needed to prevent cheap producers from skirting the levies by funneling goods through a third country.

Nafta Replacement

Still, pressure is building to have them removed.

Key U.S. lawmakers like Chuck Grassley, Kevin Brady and Ron Kind have made clear publicly and privately to Trump administration officials that the new Nafta won't be voted on until the duties are removed. For one, Canadian and Mexican retaliation against the tariffs have targeted American farmers and ranchers, so the trade deal will be of little benefit to the sector as long as the tariffs are in place, lawmakers argue.

Prime Minister Justin Trudeau's government, meanwhile, has warned it might not ratify the trade deal if the tariffs remain in place, a sentiment shared last week by Mexico's envoy to the U.S., Martha Barcena.

‘Top Priority'

Trump once threatened to give notice of withdrawal of the existing trade deal as a pressure tactic to pass the new one -- in effect, giving Congress a choice between the new deal or none at all. But he hasn't made that threat since late last year, and has never given notice of withdrawal.

Lighthizer, amid talks with China, stressed to U.S. lawmakers the importance of passing the continental pact.

“That's our top priority, and if the Congress doesn't see fit to pass that, then everything else we're talking about is kind of like a footnote, because it'll mean we can't do trade deals,” he said, later adding: “It would be such an admission of failure by all of us.”

There are mixed messages over how much the three countries are engaged on resolving the issue.

Congressional aides and Canadian government officials, speaking on condition of anonymity, have said there are no active negotiations between the countries to resolve the tariff issue. But that doesn't mean they're not discussing it. Canadian Foreign Minister Chrystia Freeland pressed Vice President Mike Pence and Senator Lindsey Graham this week for tariff relief, one official said. Meanwhile, Guillermo Malpica Soto, head of the trade office at the Mexican embassy in Washington, said last week negotiations to resolve the tariffs had resumed and that he was confident the matter could be resolved.

Canada is heading to an election this fall, meaning the trade deal would need to pass by June to avoid being punted to the next legislature.

“We think they ought to be lifted and they ought to be lifted right now,” Trade Minister Jim Carr said in an interview, while declining to comment if Canada would block USMCA over the tariffs. “Canada will decide when the American position becomes clear what the next move might be.”

--With assistance from Erik Wasson.

To contact the reporters on this story: Josh Wingrove in Ottawa at jwingrove4@bloomberg.net;Jenny Leonard in Washington at jleonard67@bloomberg.net;Joe Deaux in New York at jdeaux@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Stephen Wicary, Theophilos Argitis