WASHINGTON — President Donald Trump on Thursday began to put some meat on the bones of his trade policy.
In a gathering of Republican lawmakers, Trump — who pulled the U.S. out of the Trans-Pacific Partnership trade deal earlier this week — reiterated that he will negotiate many bilateral agreements, but press for a 30-day termination notification to be triggered if the U.S. deems a country is not trading fairly.
That statement could create major headaches for retailers and fashion brands, many of which are heavily dependent on complex and interconnected global supply chains — and order goods six months or more in advance. But even as he talked about bilateral deals, Trump took aim at another pact he has blasted in the past: the North American Free Trade Agreement with Canada and Mexico.
Tensions already are high with the North American nation following the president’s executive order to build a giant wall on the U.S.-Mexican border and get Mexico to pay for it. The signing of the order on Wednesday caused Mexican President Enrique Peña Nieto to cancel his planned meeting with Trump in Washington next week.
Adding fuel to the fire, White House Press Secretary Sean Spicer created a wave of concern and confusion when he later told reporters that Trump is also working on a plan that could include imposing a 20 percent border tax on imports from Mexico to pay for the wall.
However, there was a lot of uncertainty surrounding Spicer’s comments, ranging from what he meant by a border tax and whether it could be applied solely to imports from Mexico, without running afoul of global trade rules and the existing NAFTA.
“When you look at the plan that’s taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico. If you tax that $50 billion [the U.S. trade deficit with Mexico] at 20 percent of imports — which is, by the way, a practice that 160 other countries do — right now our country’s policy is to tax exports and let imports flow freely in, which is ridiculous,” Spicer told reporters on Air Force One en route back to Washington after Trump’s speech. “By doing it that way, we can do $10 billion a year and easily pay for the wall just through that mechanism alone.
“If you think about what a border tax on imports from countries like Mexico [where] we have a huge trade deficit does, that’s really going to provide the funding,” Spicer said.
Asked if the administration is considering imposing a border tax on other countries, Spicer said the only focus now is Mexico.
“Right now, we are focused on Mexico, but I think as we look comprehensively at our trade situation and countries that we have a deficit for, this is something the president has been talking about holistically,” Spicer said. “He has talked about a border tax. In particular companies that move out, ship things back in. But in this case, this really handles, is focused more on the immigration piece.”
Spicer did not elaborate on the details of the border tax mechanism, but based on the way he described it in a brief huddle with reporters it appeared he was referring to a “border-adjustability tax.”
Trump and Congressional Republican leaders have said comprehensive tax reform is a top priority this year. The House GOP blueprint on tax reform released last year included a “border-adjustability tax” that is similar to what Trump has proposed.
Speaking at the Republican lawmaker retreat in Philadelphia, Trump touted his executive action Monday withdrawing from the 12-nation TPP, saying it will “pave the way for new one-on-one trade deals that protect and defend the American worker.”
“Believe me, we are going to have a lot of trade deals,” he pledged. “But they will be one-on-one. They won’t be a whole big mash pot….If that particular country doesn’t treat us fairly, we will send them a 30-day notice of termination. Then they will come and say ‘please don’t do that’ and we’ll negotiate a better deal during that 30-day period. The other way [free-trade agreements that don’t include such ‘out’ clauses] you can’t get out of it. It’s like quicksand.”
Hun Quach, vice president for international trade at the Retail Industry Leaders Association, said the 30-day withdrawal notification — if agreed to by the trading partners — could be problematic.
“Under current law, my understanding is that most of our trade agreements have a six-month notification process to withdraw from existing free-trade agreements, so [the proposed] 30 days is certainly a much shortened time period,” Quach said. “Our companies are very dependent upon international trade and have global supply chains. We’ll have to see whether or not we can agree on it first, but I imagine a 30-day notification, for us to adjust our supply chains is a little bit too short.”
NAFTA was also in Trump’s crosshairs in the speech.
“NAFTA has been a terrible deal — a total disaster for the United States — from its inception, costing us as much $60 billion a year with Mexico alone in trade deficits…not to mention millions of jobs and thousands and thousands of factories and plants closing down all over our country,” Trump said.
Some economic studies have shown that NAFTA trade has grown significantly over the past two decades and cross-border investment has also surged. But critics of NAFTA argue it is to blame for job losses and wage stagnation in the U.S. because competition from Mexican firms forced many U.S. firms to move production there.
“I will not allow taxpayers or the citizens of the United States to pay the costs of this defective transaction — NAFTA — one that should have been renegotiated many years ago, except that the politicians were too preoccupied to do so,” Trump said. “To that end, the President of Mexico and myself have agreed to cancel the planned meeting scheduled for next week. Unless Mexico is going to treat the United States with respect, such a meeting would be fruitless and I want to go a different route. I have no choice.”
While Trump stopped short of threatening to pull out of NAFTA altogether, his subtle warning to Mexico about taking a “different route” raised concerns in free-trade circles.
“We not only utilize NAFTA, but also see the benefits with the existing agreement that we would not want to see deteriorate,” Quach said. “At the same time, I am talking to our member companies about what areas we could see upgraded. For example, provisions related to e-commerce and maybe even some provisions that were included under TPP. We are taking a close look at all of that now and have started conversations, but we don’t have a formal list of proposals yet.”
The disappointment importers and retailers expressed about the demise of TPP on Monday was replaced Thursday with some more optimism about Trump’s willingness to negotiate bilateral trade deals, particularly if he should decide to do one-on-one pacts with some of the TPP countries.
But officials also raised concerns about tearing apart the 23-year-old NAFTA and replacing it with separate bilateral trade deals. Canada already has a separate trade pact with the U.S., but Mexico does not.
“We are happy the new administration sees the benefits of free trade agreements and want to see it negotiate more agreements, but obviously our perspective would be to also link them together to maximize the benefits for American brands and retailers,” said Julia Hughes, president at the U.S. Fashion Industry Association. “We would hope that we can have a fresh discussion about what market access provisions for apparel products and other fashion products could look like in [a bilateral deal with Vietnam, for example]. Hopefully there would be some improvement, from our perspective.”
On NAFTA, Hughes said retailers and brands are concerned about any alternative, such as separate bilateral deals with Canada and Mexico.
“With NAFTA, meaning the three countries together, the supply chain is very successful for textiles, for apparel and for home furnishings,” Hughes said. “In our sector, it has really worked very well to share inputs and manufacturing among the three countries. To disrupt the entire agreement of NAFTA would certainly be very negative for sourcing and for investment, and the long-term outlook for textile and apparel companies.”
Stephen Lamar, executive vice president at the American Apparel & Footwear Association, said, “The way supply chains work, a 30-day kick-out notice could be potentially very disruptive and may actually become a disincentive for people to use the agreements they negotiate. NAFTA has a six-month kick-out clause. Even that is something that people would view as very disruptive, especially if that is occurring with the supply chain that has really been built up over time.”
Augustine Tantillo, president and chief executive officer at the National Council of Textile Organizations, said he agreed with the Trump administration’s philosophical view that “you can get a better deal by doing individualized agreements as opposed to doing them en blanc.”
“We can see the logic to his perspective,” Tantillo said. “If you sit down with a group of 12 countries, one country may press for [a concession] that is sensitive in our area and if you make that concession or agree to that position, you then have to extend it to the other [10 parties in the case of TPP] when they may have not made a reciprocal offer to help the U.S.”
He said NAFTA is in place at the moment and “until there is something that demonstrates it no longer exists or is being dramatically changed, people are going to operate under that.”
“We support the continuation of NAFTA, while also acknowledging it can be improved and upgraded,” he said. “We obviously would have to see what terms of the individual agreements might be between Mexico, the U.S. and Canada versus the overarching three-country structure in place today.”