A Glimmer of Hope on Trade — No Auto Tariffs and a NAFTA Replacement Wins Support
Author: Greg Valliere
May 16, 2019
AMID ALL THE GLOOM OVER TRADE WARS, Congressional negotiators reported real progress yesterday in talks to ratify a replacement for NAFTA, called the U.S-Mexico-Canada Agreement (USMCA). There’s even hope that U.S. steel and aluminum tariffs against the two countries could be lifted later this year.
YOU COULD SENSE A MOMENTUM SHIFT YESTERDAY: The Trump Administration is showing signs of backing away from trade wars on multiple fronts — and there are signs that the grumbling from Republicans in Congress is having an impact. Moreover, signs of a softening U.S. economy could be a catalyst in getting a China trade deal this summer.
WE’RE NOT READY TO BUY STEPHEN MNUCHIN’S HAPPY TALK, since he clearly was too optimistic on a China deal, but his take on the Mexico-Canada talks was surprisingly upbeat yesterday. “I think we are close to an understanding with Mexico and Canada,” Mnuchin said, on labor and environmental safeguards that Nancy Pelosi and most Democrats have demanded in the new USMCA. A deal with Ottawa needs to be ratified this summer, ahead of Canada’s fall elections; yesterday Pelosi indicated that’s do-able.
MNUCHIN AND OTHER TRUMP AIDES undoubtedly have been swayed by withering criticism from Republicans, including Senate Finance Chairman Chuck Grassley, who insists that a USMCA deal must be coupled with the lifting of steel and aluminum tariffs — which suddenly looks possible. And in a sign of thawing, Vice President Pence said he’s been in contact with Canadian Prime Minister Justin Trudeau recently, discussing a possible deal. Trudeau and Donald Trump were barely on speaking terms for the last year.
STILL ANOTHER SIGN OF SOFTENING BY TRADE HARD-LINERS is the White House decision to delay auto tariffs for another six months — after intense criticism from Congress that tariffs would hurt the U.S. industry. “This shows that Trump is listening to criticism in Michigan and Ohio, he knows how crucial those states are for his re-election,” a GOP staffer told us yesterday.
AS FOR A CHINA DEAL, it appears that Mnuchin and high-ranking U.S. officials will travel to Beijing later this month, an encouraging sign. The new catalyst is data from both countries that show economic growth slipping. No one expected second quarter U.S. growth to top the 3.2% first quarter pace, but data yesterday raised the prospect that GDP may expand by no more than 2% this quarter, as uncertainty grows over trade.
AMID SIGNS OF HOPE ON TRADE comes another positive development — a well-placed leak in this morning’s Washington Post that makes it clear that Trump wants to dial back the rhetoric on Iran. Uber-hawk John Bolton apparently has been reined in by the president — Trump clearly is an isolationist who has little stomach for a major new U.S. troop commitment in the Mideast.
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