This year began with American officials postponing a planned tariff increase amid encouraging signs of progress on a trade deal with China—and with hopes for the speedy passage of a rewritten deal between the U.S., Canada, and Mexico.
Unless something changes this week, it looks like the year may end with a further escalation of the trade war with China, putting a deal farther out of reach. But there is hope, finally, for the new North American trade pact to pass.
In many ways, this week is the final exam for year two of President Donald Trump's effort at reshaping America's most important trading relationships. It's been a year marked by promises of progress that have repeatedly dissolved, and of tariff hikes that have burdened the economy with billions of dollars in additional taxes without yielding the desired results. If the first year of Trump's trade wars proved that these conflicts were anything but "good and easy to win," the second year has demonstrated how easily trade wars can become expensive political quagmires.
But there is still time for a final breakthrough on both fronts.
On Monday, The Wall Street Journal reported that administration officials and congressional Democrats were nearing a final deal to pass the United States–Mexico–Canada Agreement (USMCA). The updated and rewritten version of the North American Free Trade Agreement (NAFTA) has been waiting for congressional approval since late last year, when the chief executives of all three countries approved it.
On Monday afternoon, CNN reported that the remaining policy issues had been settled, paving the way for the House to vote on the trade deal later this week. Previously, Senate Finance Committee Chairman Chuck Grassley (R–Iowa) said the deal would have to start moving this week to be able to clear the Senate before its Christmas break begins on December 19.
On the China front, a breakthrough seems less likely—and yet another escalation in the tariffs is set to take effect on Sunday. Chinese officials are demanding the cancellation of those new trade barriers and the repeal of others before agreeing to the first phase of a deal. Trump has been unwilling to make that concession.
Sunday's deadline is "a very important date with respect to a 'go,' or a 'no-go,'" White House economic advisor Larry Kudlow said Friday during an interview on CNBC.
If the rest of the year has been any indication, bet on "no-go." Kudlow claimed in April that the two countries were making "good headway," and Treasury Secretary Steve Mnuchin promised a few weeks later that a deal was "getting close." By June, Mnuchin was telling reporters the deal was "90 percent" finished. At a rally in September, Trump promised farmers that a deal with China would be done "soon." The following month, with Chinese trade officials sitting in the Oval Office, Trump assured the country that "substantial progress" had been made on "phase one" of a deal—backtracking from the administration's previous stance that opposed a piecemeal deal. Details, the president said on October 11, would be released within five weeks.
Two months later, no details of the deal have been released. If Sunday's planned tariff increase—which will hit consumer electronics, toys, and various other items with a new 15 percent import tax—goes ahead as planned, a deal seems to be off the table for now.
The number of almost-there stories on U.S.-China trade negotiations has been impressive. https://t.co/gdyzZTx48L
— Bruno J. Navarro (@Bruno_J_Navarro) April 3, 2019
Needless to say, negotiating major deals with the United States' biggest trading partners is not an easy task and not a job to be rushed. Still, these are conflicts that Trump chose to take on. Indeed, he promised they would be easy.
And no matter what happens this week, it's virtually impossible for a limited trade deal with China to balance out the damage done by Trump's tariffs. Americans have paid more than $42 billion in tariff revenue this year—including $4 billion in the month of October. In fact, Americans paid more tariff revenue to the federal government in October ($7.2 billion in all) than in any other month in U.S. history, according to Commerce Department data.
While the negotiations over the USMCA have not caused as much direct pain as the China trade war, its passage would be a mediocre accomplishment at best. In many ways, the USMCA is a step backward from NAFTA—among other things, the new deal would raise barriers to trade for cars and car parts. The best argument for passing the USMCA is just to would some uncertainty over the future of North American trade.
The administration's year of fruitless negotiations, overpromised progress, and escalating tariffs is nearly over. If the USMCA can speed through Congress before 2020, the White House might be able to salvage a C-minus. Otherwise, Trump (and the rest of us) might end up having to repeat this class.