Steve Weisman: Hello, this is Steve Weisman at the Peterson Institute for International Economics with Gary Hufbauer, also of the Institute. On Monday, January 23rd, President Trump announced a bunch of initiatives on trade fulfilling his promise to have an America first trade policy. Gary, what did he announce?
Gary Hufbauer: Well, he announced several things. One, he’s put out an executive order calling for renegotiation of NAFTA. Now, that’s not necessary because the President can of course call up his counterparts in Mexico and Canada, and they’d be happy to meet. In fact, they’ve set up a meeting with both Canadian Prime Minister Justin Trudeau and Mexican President Peña Nieto. But he has an executive order renegotiating NAFTA.
Secondly, he has an executive order withdrawing the United States from the Trans-Pacific Partnership (TPP). Again, this is more symbol than anything new because the TPP was never submitted to Congress, so it was not going any place anyway, but is a stronger symbol.
And third, he’s told some CEOs of companies that if they move jobs abroad, he’s going to put a 35% tax on their imports into the United States. That is repeated, a statement he’s made before to certain individual companies and how he said that to a group of CEOs.
So, we are quite a bit of symbolism, which reinforces his campaign promises.
Steve Weisman: Can he selectively impose 35% tariffs on individual companies?
Gary Hufbauer: I don’t think so. I think if he does that, he will run into court problems pretty quickly that is naming a company, but he could name the products that the company imports on a very finely designated level and put a tariff on those. But actually naming a company sounds like a breach of the 14th amendment, which requires equal protection of the laws.
Steve Weisman: Gary, what do you think he’ll do on NAFTA, out of the box, on renegotiating it?
Gary Hufbauer: Well, here’s the big thing and I really want to emphasize this symbolism point. I think NAFTA will be -- the name will go. And, for many of his supporters, that will be quite a triumph. We’ll get rid of the NAFTA name and replace the substance of NAFTA with bilateral agreements, one with Canada and secondly with Mexico.
So, the symbolism there is enormous. Now, in terms of Canadian relations, we don’t have many disagreements with Canada. We have some on softwood lumber and maybe there are a few other smaller things that we have disagreements. That should be a fairly smooth negotiation. With Mexico, that’s where the hard stuff is.
And, I think Trump and these are just guesses, he will have a list of areas where he wants Mexico to open its markets in ways that they are not already open and Mexico is very largely open already. So, a few things like the so-called de minimis level for low value shipments into Mexico with the no customs form or very simple custom form, no tariff, is only $50. Coming into the US, it’s $800. So, get them to raise their de minimis level, so more Mexicans are going to purchase from eBay or from a store, from Amazon in the US. Well, that would be something. But I think probably the big thing is that he will want to raise this so-called rule of origin especially on autos.
Steve Weisman: How would that work?
Gary Hufbauer: Well, we’re getting pretty much into the weeds here, but the present of rule of origin is a 65% of any auto or part has to be made within North America to be eligible for zero tariffs. So, increase that 65% let’s say to 75% or 80%, that will make it inconvenient for some companies. I think in particular, Toyota would find that inconvenient, but other auto companies might like it and some parts companies would probably love it. And since, the autos had been so central to his Twitter campaign, this kind of fits in naturally with what he’s been talking about.
Steve Weisman: Will the Mexicans go along with that?
Gary Hufbauer: Probably not willingly, but they might go along as--
Steve Weisman: Wouldn’t they get asked for something in return?
Gary Hufbauer: Well, this should be something they’d be giving in return. Well, what would they ask in return?
Steve Weisman: Yeah.
Gary Hufbauer: I don’t know what the Mexican demands are of the US. I think the main Mexican complaint about the US, which Trump might be able to answer is that the infrastructure on the southern border crossing, that would be El Paso-Juarez and Laredo-Nuevo-Laredo, and San Diego-Tijuana and others quite congested, quite congested.
So, they would like to see more infrastructure so it’s easier to -- you don’t have such a long line of trucks and so forth. And maybe that fits in with the infrastructure. I don’t know what else the Mexicans really want of the United States.
Steve Weisman: Gary, it doesn’t sound as like these are radical departures from the status quo.
Gary Hufbauer: Well, it depends on how large the US wish list is of Mexico. Mexican trades surplus with the United States is running about $60 billion a year. That’s not a big number for the US, though politically maybe it’s a big number. For Mexico, it is a big number.
And, the Trump campaign rhetoric would suggest we want to reduce that number a lot, maybe cut it in half, maybe cut it by two-thirds. And that would mean a lot more Mexican imports from the United States or a lot fewer Mexican exports in the United States. So that would be a big lift, a big hit on the Mexican economy.
Steve Weisman: Thank you, Gary.
Gary Hufbauer: Thank you.