Year in Review in Trade: The Year of Breaking UP and Getting Back Together Again
Some relationships last forever. Others need to be restarted.
That’s what’s happened in the trade world as President Trump set out to blow up various free-trade agreements because he felt the United States was getting treated unfairly with huge trade deficits.
He didn’t even attempt to redo the Trans-Pacific Partnership, the trade accord between the United States and 11 other Pacific Rim countries that took nearly eight years to negotiate and was expected to be approved by Congress.
In his first week in office, Trump signed an executive order backing out of the TPP, which may still go forward among the other 11 signatory countries that range from Canada to Chile to Japan to Australia.
Leveling the playing field with trading partners is all part of Trump’s “America First” campaign, trying to protect U.S. jobs that have drifted to other countries, particularly in manufacturing.
After the Trans-Pacific Partnership, Trump later turned his attention to the North American Free Trade Agreement, or NAFTA, which went into effect in 1994. During those 24 years of free trade, many jobs in apparel, electronics and the automobile industry took root in Mexico to make products exported to the United States.
Last year, the United States had a $63 billion trade deficit with Mexico and an $11 billion trade deficit with Canada, the other NAFTA member.
Negotiations on a new NAFTA started in mid-August in Washington, D.C. The fifth round was in November in Mexico City, but little progress was made.
During those talks, apparel and textiles negotiators met early in the round but didn’t make much headway.
However, during the September round, U.S. trade negotiators proposed eliminating TPLs, or trade preference levels, an idea long supported by the U.S. textile industry, whose products are widely used in Mexico because of NAFTA.
The next full round of negotiations is scheduled to be held in Montreal in late January. Everyone is hoping to wrap up the talks by February or March next year before the Mexican presidential elections are held on July 1.
Trump, however, has threatened to pull out of NAFTA if negotiations don’t progress the way he would like.
Next on the list of trade pacts for renovation is the accord between South Korea and the United States, known as KORUS.
At first, Korean officials said they didn’t think there was any need for an updated trade agreement because the pact is only 5 years old. But the United States has complained that its trade deficit with South Korea has more than doubled to $27.6 billion since the trade accord took place. The automotive sector accounted for nearly 90 percent of that deficit.
One U.S. goal is to eliminate tariffs on U.S. agricultural products. In textiles and apparel, South Korea sent $875.2 million worth of goods to the United States for the year ending in October. That was down 3 percent at $902.2 million the previous year.
The United States sent $297 million worth of apparel and textiles to South Korea for the year ending in October, down 4 percent from the previous year.
When negotiated, KORUS eliminated 90 percent of tariffs on goods traded between the two countries. South Korea agreed to lift trade barriers for American exports such as cars and beef while the United States gave up on its efforts to eliminate South Korean subsidies on rice. It was America’s first bilateral trade agreement with a major Asian country.
At the first special session between the U.S. and South Korea, held in August in Seoul, Korean officials said they didn’t think KORUS needed to be renegotiated and called for a joint study on the accord before any further decisions were made.
At the second special session held on Oct. 4 in Washington, D.C., both sides agreed to negotiate amendments to the bilateral agreement, but now Trump, according to various news sources, has threatened to back away from this pact too if major concessions aren’t made.
Next in the lineup for revamps is the Dominican Republic–Central America Free Trade Agreement.
Central America, with its hundreds of clothing factories, is a big player in the apparel industry, exporting most of its production to the United States. There are factories that employ thousands of workers cutting and sewing T-shirts for Target and Walmart as well as producing T-shirts for several Los Angeles clothing companies such as Jerry Leigh.
The region is a top manufacturer of basic T-shirts, underwear, sweatshirts, pants, synthetic activewear and socks. In the Dominican Republic, a member of the Central America free-trade agreement—which also includes the United States, Guatemala, Honduras, Nicaragua, El Salvador and Costa Rica—HanesBrands employs some 8,000 people.
But the difference between Central America and NAFTA is that the United States has a $5 billion trade surplus when dealing with the DR-CAFTA countries.