Free Trade

Steel Tariffs Might Kill NAFTA Rewrite

Dozens of business and trade groups say the ongoing steel and aluminum tariffs will "create impediments" to congressional passage of Trump's USMCA.



President Donald Trump may have to choose between his steel tariffs and his rewrite of the North American Free Trade Agreement (NAFTA).

In a letter sent to the U.S. Trade Representative on Monday, dozens of business groups warned that ongoing tariffs on steel and aluminum imported from Canada and Mexico will complicate the congressional passage of the new U.S.-Mexico-Canada Agreement (USMCA). Congress is expected to consider the USMCA early next year, and the deal must also be approved by the domestic governments of the other two nations.

An overhaul of NAFTA has been a top priority for the Trump administration, but the USMCA does nothing to repeal the ariffs the Trump administration announced in March of this year. Those tariffs apply to all imported steel and aluminum, including imports from both Canada and Mexico.

"The continuation of these tariffs with respect to Mexico and Canada will create impediments to Congressional passage of the USMCA implementing bill given concerns expressed by members of Congress about the use of these tariffs with respect to our two closest allies," the collection of 32 business and trade associations wrote in the letter sent Monday.

The groups—including powerful business lobbies like the U.S. Chamber of Commerce, the National Retail Federation, and several organizations representing American automakers and manufacturers—say Trump's steel and aluminum tariffs "have caused significant harm to American manufacturers, consumers and workers." The tariffs have artificially hiked the price of both foreign and domestic steel and aluminum, providing a small boost (though sometimes not even that) to American producers at the expense of a far larger set of businesses that consume steel and aluminum to make everything from cars to beer kegs to machinery components.

"The tariffs raise the costs of manufacturing in the U.S. and place our manufacturers at a competitive disadvantage with respect to finished products which are made outside of the U.S. and imported without being affected by the tariffs," the trade associations wrote in the letter sent Monday.

When the Commerce Department announced the steel and aluminum tariffs in March, temporary exemptions were granted to Canada, Mexico, and other major U.S. trading partners. At the time, the Trump administration said it wanted to reach bilateral deals for steel and aluminum imports from other countries, but few deals materialized and the exemptions expired in June.

The White House has indicated that it would be willing to repeal the tariffs on Canadian and Mexican steel and aluminum, but that it would seek to replace those tariffs with import quotas similar to the steel quota set earlier this year as part of a bilateral deal with South Korea. In their letter, the business groups say that, too, would be an unacceptable outcome that would "create even more business uncertainty than tariffs" and would have the potential to create shortages.

The gambit here seems to be an attempt to use Trump's own favorite strategy against him. Since embarking on its trade war several months ago, the president and Commerce Secretary Wilbur Ross (among others) have argued that the tariffs are meant only to force other countries to negotiate better deals with the United States. If that's true, then it stands to reason that the administration would have no reason to keep imposing tariffs on Canada and Mexico after the USMCA is ratified.

But having groups like the U.S. Chamber openly threatening to to undermine the congressional passage of the USMCA deal is a sign of just how little trust exists between the administration and the business community, at least when it comes to trade. It's clear that the industry groups signed onto Monday's letter don't believe the Trump administration is ready to lift the tariffs, so they're applying a little leverage of their own.