US Secretary of Commerce Wilbur Ross on Friday signaled that Washington could flex its muscle with additional trading partners to exert pressure on China to open its markets, saying that a “poison pill” provision in the recently completed pact with Canada and Mexico could be replicated.
Ross said in an interview that the provision was “another move to try to close loopholes” in trade deals that have served to “legitimize” China’s trade, intellectual property and industrial subsidy practices.
The US is in the early stages of talks with Japan and the EU to lower tariff and regulatory barriers and try to reduce large US trade deficits in automobiles and other goods.
Photo: Reuters
If the EU and Japan signed on to provisions similar to the one in the new US-Mexico-Canada Agreement (USMCA), it would signal that they are fully aligned with Washington in trying to increase pressure on China, the world’s No. 2 economy, for major economic policy changes.
Ross said he did not expect much movement on China trade talks until after the Nov. 6 US midterm elections, adding that Chinese officials did not appear in a mood to talk at the moment.
The provision in the USMCA, which is to replace the North American Free Trade Agreement (NAFTA), effectively gives Washington a veto over Canada’s and Mexico’s other free-trade partners to ensure that they are governed by market principles and lack the state dominance that is at the core of US President Donald Trump’s tariff war against China.
Under the provision, if any of the three countries in the USMCA enters a trade deal with a “non-market country,” the other two are free to quit in six months and form their own bilateral trade deal.
“It’s logical, it’s a kind of a poison pill,” Ross said.
Asked if the provision would be repeated in future trade deals, Ross said: “We shall see. It certainly helps that we got it with Mexico and with Canada, independently of whether we get it with anyone else.”
With a precedent set, it would be easier for the provision to be added to other trade deals, he said.
“People can come to understand that this is one of your prerequisites to make a deal,” he said.
Hanging over the talks with the EU and Japan is the threat of a 25 percent US tariff on imported cars and auto parts as the commerce department pursues a study on whether such imports pose a national security threat.
The USMCA deal largely exempts Canada and Mexico from such tariffs.
The US cited national security concerns when it announced tariffs on imported steel and aluminum from a number of countries in early March.
Ross said that Canada and Mexico are effectively “really not in a position to object to [the national security tariffs] anymore, because they’ve signed an agreement that says if we put them in we’ll exempt the first 2.6 million” vehicle imports.
He declined to discuss timing for releasing the “Section 232” auto probe’s findings, saying that Trump has said he would not impose car tariffs while EU and Japan talks are under way.
However, in a signal that the probe could take longer, Ross said that the department was now incorporating details on auto trade from the USMCA deal, including new provisions that would effectively require more automotive content to be made in the US.
He also said that Japan should take steps to “move manufacturing into the US” to cut its US$40 billion automotive trade surplus with the US.
He declined to say whether the Trump administration would seek a voluntary export cap from Japan.
“The methodology that we’ll use will be determined by the negotiations. There are plenty of ways you can solve things,” Ross said. “We want more production of everything in the United States. That’s our theme song with everybody.”
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