President Trump seeks to redefine all major free trade agreements on the basis of U.S. economic and geopolitical leverage.
In these efforts, the United States Mexico Canada Agreement (USMCA) is likely to serve as a blueprint.
From NAFTA to U.S. First North America
Despite all Trump’s hyperbole, the USMCA reads like a mix of Clinton’s NAFTA and Obama’s Trans-Pacific Partnership (TPP). Within North America, the treaty will tighten current restrictions on North American vehicle content and introduce new rules for manufacturing in high-wage factories, mainly in the U.S. and Canada, though it may leave major supply networks largely intact. Moreover, NAFTA’s dispute settlement mechanism, which the U.S. would have liked to eliminate, will carry over into the USMCA.
To investors, businesses and consumers, the net effect means rising costs.
Internationally, the effects will be more ambiguous but potentially consequential. The contract is mined with fine-print clauses designed against possible Canadian or Mexican deals with a “non-market economy” (read: China) – which, through the USMCA, Trump would like to extend into all other major U.S. free trade agreements.
What’s worse is that some provisions could make it easier for companies to challenge climate and environment regulations in the three countries, even before they are adopted. In this way, the USMCA has the potential to extend the Trump administration’s pollution agenda and thus prolong its climate damage legacy for years after he leaves the office, despite the just-released UN (IPCC) warning about impending global climate risks.
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From the failed FTAA to U.S.-South America trade?
In the 1990s, President Clinton hoped to extend the NAFTA into a Free Trade Agreement of the Americas (FTAA). Venezuela’s Hugo Chavez condemned it as a “tool of imperialism.” Latin America’s leaders, including then-presidents of Brazil, Luiz Inácio Lula da Silva, and Argentina, Néstor Kirchner, demanded the pact eliminate U.S. agriculture subsidies and offer access to South American producers to U.S. markets. Yet, instead of opening South America to free trade, the FTAA split the region into two blocs, as President Lula had predicted.
Like the Reagan administration in the 1980s, the Trump White House is willing to resort to hard power and is now in a better position to superimpose U.S. trade terms on South America.
After the ‘soft coup’ in Brazil and the controversial imprisonment of former President Lula to prevent his likely victory in the 2018 presidential election, the first-round triumph of the extreme-right ex-paratrooper Jair Bolsonaro bodes well for U.S. efforts. Bolsonaro is an admirer of its military dictatorship (1964-85), which heralded the rise of Chile’s Pinochet, Latin American juntas and Operation Condor; the U.S. backed campaign of political repression and terror by right-wing dictatorships. In Argentina, the pro-U.S. President Mauricio Macri has undermined the economy with a $50 billion deal with the International Monetary Fund (IMF) that led interest rates to a world record 60 percent.
In brief, the bargaining position of the key South American economies is currently significantly lower than it was only a decade ago. Nevertheless, an ‘America First’ South America deal will not materialize without resistance, thanks to Trump’s controversial immigration policies, and U.S. withdrawal from international trade and climate change agreements.
Stalemate in U.S.-EU trade talks
When President Obama began talks on the Transatlantic Trade and Investment Partnership (TTIP) in early 2013, EU leaders were divided over goals and the Democratic White House was constrained by a Republican-controlled Congress. As the talks dragged out, transatlantic goals faced new head winds across Europe, where free trade is increasingly opposed and mainstream parties felt uneasy with the secret and opaque TTIP negotiating process.
Trump has alienated and weakened German Chancellor Angela Merkel. French President Macron has stated that he is not in favor of a “TTIP-style” U.S. deal. European public opinion is vehemently against the Trump White House. The series of disagreements between Washington and Brussels extend from trade and protectionism to the Iran nuclear deal, and the U.S. withdrawal from the Paris Accord. Moreover, the impending UK Brexit clouds projections.
Despite a short-term trade truce last July, the EU has warned that Trump’s pressure tactics will not work with Brussels. The outgoing European Commission president Jean-Claude Juncker has gone further highlighting the dependence of the US dollar on the euro, saying, “It is absurd that Europe pays for 80 percent of its energy import bill, worth €300bn a year, in U.S. dollars when only roughly 2 percent of our energy imports come from the United States.”
In brief, Brussels is posturing, positioning and transacting with Trump; just as Trump is with Brussels. The historical stress on “common values and interests” hasn’t crumbled but is eroding.
Toward ‘America First’ Asian Century
In Asia Pacific, the most dynamic world region, Trump killed the TPP during his first day in office. More recently, he has considered rejoining a revised TPP, but only if the U.S. is granted a better deal. In turn, some TPP-11 participants hope Trump will prove a one-term president and U.S. withdrawal will be reversed after 2020. Others have joined China-led talks at a Regional Comprehensive Economic Partnership (RCEP).
An Asia Pacific USMCA will not be an easy sell in the region. Even America’s allies – Japan and South Korea – feel unsettled about new protectionism. But as before, Trump is likely to use geopolitics as leverage to get an economic deal he wants.
Irrespective of the outcome of the mid-term elections, Trump is likely to push a new Asia Pacific alignment, which strategically will seek to cement America’s Indo-Pacific Vision to contain China’s rise. Economically, it aspires to neutralize China’s One Road One Belt initiative. Militarily, it is exploiting the “freedom of navigation” doctrine to dominate the South China Sea as 60 percent of U.S. naval fleet will be transferred into the region by 2020.
If U.S. protectionism will undermine free trade in Asia Pacific, the regional extension of the USMCA could prove more ‘moderate’ than initially projected, but it would split the region, seek to undermine China’s rise and thus derail the highly-anticipated Asian Century.
What Trump wants is an ‘America First’ Asian Century.
- A shorter version of this commentary was released by South China Morning Post (Hong Kong) on October 25, 2018
DAN STEINBOCK
Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/
