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Trump trade moves muddy outlook for US-China, NAFTA talks

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A series of recent trade moves by President Donald Trump, including decisions to impose new tariffs on certain Chinese products and actions on steel and aluminum, have clouded the outlook for ongoing US-China trade talks and negotiations with Canada and Mexico to update the North American Free Trade Agreement (NAFTA).

Over the weekend, Commerce Secretary Wilbur Ross met with Chinese trade negotiators in Beijing to discuss how to get China to implement recent pledges to purchase more American farm and energy products. However, those discussions appear to have ended with little progress as the US pressed for long-term contracts that China would not commit to. Ross held the talks with China’s top trade negotiator, Liu He.

China said it would not agree to any additional farm and energy product purchases unless the two nations can come to an agreement on wider trade issues to head off announced tariffs.

“If the United States introduces trade measures, including an increase of tariffs, all the economic and trade outcomes negotiated by the two parties will not take effect,” China said in a statement circulated by state-run media. The Chinese government statement added, "To implement the consensus reached in Washington, the two sides have had good communication in various areas such as agriculture and energy, and have made positive and concrete progress while relevant details are yet to be confirmed by both sides.”

Along with broader tariffs on aluminum and steel, the US has moved aggressively against Chinese government practices it says violate international intellectual property (IP) obligations and has alleged instances of IP theft by Chinese companies. Besides imposing tariffs, the US also filed a complaint at the World Trade Organization (WTO) in late March requesting consultations with China on the IP issues.

Late last week the European Union (EU) joined the US, filing a complaint of its own at WTO over Chinese IP practices. China's Ministry of Commerce released a statement June 3 expressing is disapproval of the move. "China expresses regret over the EU launching the complaint and will properly handle it according to the WTO dispute settlement procedures," the ministry wrote. "The Chinese government has always attached great importance to the protection of intellectual property rights and has adopted many powerful measures to protect the legitimate rights and interests of domestic and foreign intellectual property rights holders," it added.

Meanwhile, Trump's move to impose steel and aluminum tariffs angered Canada and Mexico and may have poisoned the well for ongoing NAFTA talks.

Bilateral deals floated, again

Complicating matters further, Trump again mentioned the possibility of bilateral trade deals with Canada and Mexico.

Trump noted they are “two very different countries,” in comments to reporters. He added, “[I] wouldn’t mind seeing NAFTA where you’d go by a different name ... a separate deal with Canada... a separate deal with Mexico.” The US and Canada have a bilateral free trade agreement dating to the Reagan administration that was superseded by NAFTA in 1994.

Trump emphasized his common refrain that the US loses “a lot of money with Canada” because of NAFTA as it stands, and loses “a fortune with Mexico."

Finally, he remarked on a decision to place metal tariffs on Canada, Mexico and the EU. Trump stressed that he believed the US was being taken advantage of, and that the tough approach was warranted. “I believe in the word reciprocal,” he observed.

Meanwhile, trade partners continued to fire back at Trump's surprise tariff announcement.

Over the weekend, Canadian Prime Minister Justin Trudeau appeared on NBC's Meet the Press. Host Chuck Todd asked, "You said you're going to retaliate. How serious you are, and do you really think you can make a dent? Look, the American economy's a lot larger than — how, how can you do this retaliation without hurting Canada more than the United States?"

Trudeau responded, "Well, we've put forward, first of all, we're putting the same kinds of tariffs exactly on steel and aluminum coming from the United States into Canada to be directly reciprocal. But we're also putting a number of tariffs on consumer goods, finished products for which Canadians have easy alternatives. One of this — either made in Canada or made from another partner with no tariffs. One of the truths about tariffs is they drive up costs for consumers. And on top of that, these tariffs are going to be hurting American workers and Canadian workers."

Trudeau floats greater US access to Canada's dairy market

However, Trudeau offered a potential olive branch to the US, suggesting Canada was open to giving the US greater dairy market access in a NAFTA 2.0 deal. Still. he said talks have hit an impasse because of the US’ insistence on a five-year sunset clause – something Canada and Mexico strongly object to.

“I think they want a better deal on their auto sector from Mexico, and I think they want more access on certain agriculture products like dairy to Canada,” Trudeau said when asked what he thought the Trump administration sought from the NAFTA talks. “We're moving towards, you know, flexibility in those areas that I thought was very, very promising. But the United States want a sunset clause in NAFTA, which makes no sense. You don't sign a trade deal that automatically expires every five years.”

Trudeau also questioned whether the Trump administration’s sunset proposal is merely a tactic to discourage businesses from investing in Canada and Mexico.

“What company is going to want to invest in Canada if, five years later, there might not be a trade deal with the United States?” he asked. “And that, quite frankly, is probably part of the whole point of the United States to say, ‘Well no, we don't want anyone investing in our NAFTA partners. We want people investing in us.’ But that's not the way trade works.”

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