Trade was not a wedge issue in the U.S. midterm elections, but it’s about to become a flashpoint in the new Congress as President Donald Trump squares off against the Democrat-controlled House of Representatives.
And that is likely to make ratification of the recently negotiated United States-Mexico-Canada trade agreement (USMCA) an early test of the willingness of Democrats to play ball with the Trump White House.
In a tweet Wednesday, Mr. Trump suggested he’s reading the midterm results as an affirmation of his muscular trade policies.
“Received so many Congratulations from so many on our Big Victory last night, including from foreign nations (friends) that were waiting me out, and hoping, on Trade Deals. Now we can all get back to work and get things done!” he tweeted.
That’s a clear signal that Mr. Trump intends to double-down on his protectionist trade policies in the coming months, according to Daniel Ujczo, an Ohio-based trade lawyer with Dickinson Wright.
“The White House strategy is that they are going to put as many deals forward as possible to make Congress take a stand on trade, and it’s going to start with the USMCA,” Mr. Ujczo said.
There is a lot at stake for both Canada and Mexico, whose economies have suffered because of the uncertainty that has hung over the North American free-trade agreement since Mr. Trump’s election in 2016. Both countries are embroiled in a tit-for-tat tariff fight that began with the U.S. imposition of duties on steel and aluminum earlier this year.
The three countries are expected to sign a final version of the USMCA at the end of this month. Ratification in the United States is unlikely before the incoming Congress takes over in January.
The big question now is what House Democrats, who have traditionally been less supportive of free trade, might try to “extract” from the White House and Republicans in return for supporting the new trade deal.
The Democrats know that Mr. Trump will put a high priority on passing the USMCA, “and they’ll want to trade something for their support,” said Maryscott Greenwood, a Washington-based lobbyist with law firm Dentons and a former diplomat at the U.S. embassy in Ottawa.
That means pushing for changes to the deal, such as tougher labour or environmental rules, or something completely unrelated, according to Ms. Greenwood.
She also suggested that many Republicans and Democrats will want to see the Trump administration lift the steel and aluminum tariffs before they agree to ratify the USMCA.
Canada and Mexico are obviously hoping that kind of horse trading won’t completely derail the USMCA.
None of the countries wants to reopen the agreement and perpetuate the trade uncertainty, Royal Bank of Canada economist Nathan Janzen said in a research note. As a result, he said U.S. ratification of the USMCA is the “most likely” outcome.
“None of the three trade partners will want to reopen an acrimonious debate that contributed to increased uncertainty for businesses and less investment in all three countries,” Mr. Janzen argued.
That could be wishful thinking. The changed political landscape in Washington means passage is far from a sure thing. Some experts say getting it done next year may be a long shot.
Mr. Ujczo, the trade lawyer, figures the trade agreement is roughly 100 votes short in the House of Representatives of getting through in the near-term.
“We’re not going to get to a vote any time soon,” said Mr. Ujczo, who has been closely tracking the trade positions of both incumbent and incoming House members. “I don’t think there is going to be enough oxygen in the room in Washington to get a trade deal through.”
It’s just as likely that Congress will get bogged down in investigations of alleged misdeeds by the Trump White House, now that Democrats will have the power to subpoena documents and compel testimony.
Sarah Goldfeder, an Ottawa lobbyist with Earnscliffe Strategy Group and a former adviser to two U.S. ambassadors to Canada, predicted that a congressional vote on the trade deal won’t likely come until April at the earliest. She said neither the White House nor Democrats stand to benefit from fighting over an agreement that’s already been negotiated.
Many Canadians may have hoped the midterms would pave the way for a more stable and predictable relationship with the United States.
Unfortunately, this week’s election results are just as likely to perpetuate the uncertainty well into 2019.