COVER STORY
aluminium to the United States. When it comes to steel, the EU is actually the biggest source region for the U. S. market. The tariffs on steel and aluminium, therefore, foremost affect the EU. As a response to the U. S. trade restrictions, the EU announced reciprocal tariffs, including a 25 percent tariff on steel products, agricultural products( e. g., bourbon, peanut butter, cranberries, and orange juice) and other consumer goods including motorcycles( targeting Harley Davidson motorcycles). In addition, the EU launched legal action against the U. S. trade measures at the World Trade Organisation( WTO).
NAFTA partners as Trump’ s trade policy targets
The American U-turn in trade policy has also called into question the deep trade relations the country has had with its closest trading partners, Canada and Mexico. The United States is the most important trading partner for both Canada and Mexico. In 2016, 76 percent of Canadian and 81 percent of Mexican exports went to the United States. Further, 52 percent of Canadian imports and 47 percent of Mexican imports came from the United States. Given the size of the U. S. economy, trade with Canada and Mexico is less important for the United States. However, more than 18 percent of total U. S. exports went to Canada and 16 percent of total U. S. exports went to Mexico in 2016.
With the election of Donald Trump as U. S. president in late 2016, the North American Free Trade Agreement( NAFTA), which came into force in 1994, returned to the trade policy agenda. Following pressure from the U. S., talks between the NAFTA member states- U. S., Canada and Mexico- over a renegotiation of the agreement took place. NAFTA has been a subject of intense debate ever since it was launched. However, the intensity with which President Trump attacked NAFTA during his election campaign was unprecedented. President Trump made no secret of his intention to withdraw from the agreement and, after his inauguration, examined the legal possibilities to terminate the agreement. However, initial signs indicated a less radical policy, when the Trump administration informed the U. S. Congress in May 2017 that it will not unilaterally terminate NAFTA but rather seek to renegotiate. As a legal basis, the U. S. president used the Trade Promotion Authority( TPA), which allows a U. S. president to renegotiate trade agreements which Congress can then only accept or reject as a whole but cannot change in specific parts. The TPA, whose legislation was extended under Trump ' s predecessor Barack Obama ' s time in office in order to bring the negotiations over the Trans-Pacific Partnership( TPP) to a speedy conclusion, now serves as a tool to renegotiate NAFTA.
In the NAFTA renegotiations, the Trump administration is pushing for stricter rules of origin. Stricter rules of origin, which stipulate which products qualify for preferential treatment under NAFTA depending on the share of local content, are a key strategic goal of the U. S. negotiators. Stricter rules bear the risk that, for example, Mexican companies lose export competitiveness, as they might have to produce a higher share of the value of products that they export to the U. S. domestically in order to export them under preferential NAFTA treatment, i. e., without paying tariffs. The automobile industry is at the centre stage of the discussion on rules of origin, as trade of automotive products is highly fragmented and would therefore be especially affected by tighter rules of origin. In fact, the introduction of NAFTA in 1994 served to create a highly integrated automobile industry on the North American continent, where intermediate production parts cross boarders several times before they are finally assembled. President Trump’ s stance on rules of origin in NAFTA, therefore, threaten the integrated automotive industry which is a key sector in all NAFTA economies.
In addition to the ongoing renegotiation of NAFTA, Mexico and Canada are also affected by the steel and aluminium tariffs introduced by President Trump. Mexico responded to the U. S. measures by reducing preferential market access for U. S. products established under NAFTA. Mexico also introduced retaliatory measures in the form of import tariffs on U. S. products worth $ 3 billion, including agricultural products like pork, potatoes, and whiskey as well as American steel products. Most of these products now face import tariffs of 15-25 percent. Canada responded to the U. S. tariffs on steel and aluminium with similar measures and announced that it will levy import tariffs on goods including steel, aluminium, whiskey, toilet paper, washing machines, and motorboats. U. S. steel exports are now subject to a tariff of 25 percent, while the other products are subject to a tariff of 10 percent. Overall, Canada’ s import tariffs aim at U. S. products worth $ 12.6 billion.
China as the main target of the new U. S. trade policy
U. S. and China share close trade links, which expanded rapidly in the 1990s and 2000s with the rise of the Chinese economy. China is U. S.' largest trading partner in merchandise trade. In 2017, U. S. merchandise imports from China amounted to $ 505 billion and U. S. merchandise exports to China amounted to $ 130 billion. The U. S. trade deficit visà-vis China was, thus, $ 375 billion. China also serves as a pivotal strategic production location for many U. S. firms. U. S. imports of products produced or assembled in China are also an important source of inexpensive products that serve the U. S. consumer market.
Despite the high significance of the U. S.-China trade relationship, the political tensions over bilateral trade increased considerably in the months since Donald Trump
28 • Extraordinary and Plenipotentiary Diplomatist • Vol 6 • Issue 7 • July 2018, Noida