On May 31, 2018, United States Secretary of Commerce Wilbur Ross announced the levying of a twenty-five percent tariff on steel imported from Canada, the European Union and Mexico, as well as a ten percent tax on imports of aluminum from the same nations. This move strains commercial relations with Mexico, as well as with other major trading partners.
While some economists and economic policymakers consider this move to be the opening shot of an imminently certain to occur broader trade war, Commerce Secretary Ross has justified the imposition of tariffs by stating that this is a much-needed move towards balancing trade between the US and the affected nations. United States president Donald J. Trump ordered the levying of the tariffs despite opposition to them by his own Republican Party. Additionally, some international trade experts are of the opinion that the unilateral action was taken to punish Canada and Mexico for the disagreements that remain in the renegotiation of the NAFTA.
Because of newly strained commercial relations with Canada and Mexico, two parties have maintained that they would retaliate by imposing a series of import tariffs on a diversity of goods from the United States. Canada has already announced that it would retaliate by levying taxes on over US $12 billion worth of goods imported from the United States and that it would release a list of the products which would be affected during the month of June. When discussing the issue, Canadian prime minister, Justin Trudeau, expressed that it is “inconceivable” that Canada be considered a threat to the economic well-being of the United States. Mexico, for its part, is in the process of formulating the actions it would take in response to the punitive tariffs.
In March of the present year, when Trump made clear his intentions impose tariffs on aluminum and steel, he excluded Mexico and Canada from them for a period of just over a month and a half. At the time he expressed that he was extending the exemption date as an act of “good faith” that was related to the renegotiation of the North American Free Trade Agreement.
Due to strained commercial relations with Mexico and Canada, the three participants in the NAFTA renegotiations failed to meet a deadline that was set for May for completion of the agreements. The White House was anxious to come to an agreement on the particulars of the free trade a deal because the NAFTA treaty is subject to modifications by the US Congress after July 1st. Should the trade talks not be wrapped up in a timely manner, they most likely will not be terminated before Mexico’s presidential contest. Mexico chooses its leader for the coming six years on July 1st. Manuel Lopez Obrador, a leftist, is currently leading the frontrunner as is reflected in recent polls. There are some private sector and government officials that, at this juncture, believe that the conclusion of the North American Free Trade Agreement renegotiation will happen during calendar year 2019.
The main disagreement that is holding up the successful conclusion of the NAFTA renegotiations has to do with the automotive industry’s rules of origin. The US has made clear that it wants seventy-five percent of the total value of light vehicles to be made of NAFTA region originating products. Additional to this issue, that is a strain on commercial relations with Mexico, tensions are also a product of US sought NAFTA zone wage requirements in the automotive industry, and in the definition of a five-year “sunset clause for the pact.”
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