After NAFTA: What the USMCA Means for Germany and Europe
October 1 saw the birth of the “United States-Mexico-Canada Agreement” that will replace NAFTA, the 25-year old accord that governed trade among the three North American countries. While the EU (which represents Germany in trade negotiations) was not a party to the deal, the USMCA harbors lessons for the transatlantic trade talks that President Trump and European Commission President Juncker launched at their White House meeting in July of this year.
One important consequence for Europe of the inking of the USMCA is simply that the deal was done.
First the good news. One important consequence for Europe of the inking of the USMCA is simply that the deal was done. Despite Trump’s history of inveighing against trade agreements involving more than two countries (ostensibly because the U.S. can use its sheer size to achieve better outcomes that way), he and his team have entered into an accord with both Canada and Mexico and one that is mostly win-win-win for the three countries involved. In the battle between the pragmatists and the ideologists in the White House and cabinet departments, the first group seems to have won out this time.
Why does this matter for Europe? Because if there is one thing that could derail progress between the U.S. and the EU it is Trumpian trade ideology. Beyond a hostility to multi-country deals, the other core element of the president’s worldview is that the U.S. trade deficit is bad—a sign that the country is losing, being taken advantage of. And the U.S. deficit with Germany (along with China) has specifically been an ongoing focus of White House ire. But at a September 18 press conference Trump seemed to change his tune a bit, saying “And I watch trade deficits, because to me, deficits are very important. They’re not everything, and they’re not exact. Sometimes you can have, you know, a deficit, and that’s not such a bad thing.”
Perhaps the root of this new pragmatism is a realization by the U.S. administration that it will need to rally like-minded countries (Canada, Mexico, the EU, Japan) for the generational effort to reform Chinese trade practices. And that to do that, what will count is not the kind of trade deals the country enters into—bilateral vs. plurilateral vs. multilateral—or reducing U.S. trade deficits, but rather writing new trade rules, whether in the USMCA, between the U.S. and the EU, or in the World Trade Organization.
Perhaps the root of this new pragmatism is a realization by the U.S. administration that it will need to rally like-minded countries for the generational effort to reform Chinese trade practices.
But the USMCA also flashes one yellow light in Europe’s direction. As part of the deal, both Canada and Mexico appear to have been allocated a reasonably generous allowance of automobile imports to the United States that would be guaranteed to enter free of any future tariffs that the Trump administration may decide to place on foreign cars for national security reasons. But at their July meeting, Trump and Juncker agreed to leave auto tariffs out of the new talks on reducing transatlantic trade barriers.
So while Canadian and Mexican producers have been spared, the White House retains a free hand to impose 25 percent tariffs on German and other European car exports if the ongoing Commerce Department investigation finds that foreign cars are indeed a security threat.
It may be that the White House simply wants to retain the leverage that the threat of auto tariffs provides as it talks trade with Europe and will not actually choose to impose them on security grounds on a NATO ally like Germany. Still, no one should be shocked if, after the signing of the USMCA, the EU decides to create a little friendly negotiating leverage of its own.