The Trump administration aims to step up trade talks with other countries, using its new pact with Canada and Mexico as a template to redefine rules on everything from foreign exchange and labor markets to how U.S. partners do business with China. The U.S. will be less worried about running afoul of the World Trade Organization, a watchdog Washington helped create. Instead, it will focus more on using trade deals to confront what officials describe as “nonmarket” forces distorting world commerce.
And Washington will no longer see trade pacts as a way to foster global supply chains for its corporations. Instead, it will prioritize tougher standards for goods flowing into the U.S. in a bid to steer more manufacturing back home. The underlying principle, as Mr. Trump himself said in unveiling the North American accord this week, is that trade partners should consider it “a privilege for them to do business with us.” Access to the U.S. market will become increasingly contingent on countries adopting American rules and standards, from intellectual property protections to higher wages.
The administration is still honing a precise strategy for how the new pact—rebranded the U.S.-Mexico-Canada Agreement—will apply to other trade partners. The next big tests will be Japan and the European Union, which both recently started talks with the Trump administration on new trade deals, and the U.K. and the Philippines, which are expected to do so shortly.
Whether the Trump team can replicate the new pact’s terms elsewhere is unclear. The White House had unusual leverage over Canada and Mexico with its threats to blow up a quarter-century-old pact that their economies had come to depend on. The EU and Japan have no such existing trade pacts with the U.S., so have less to lose. Indeed, they see their own burgeoning free-trade-zones—an EU-Japan pact that doesn’t include the U.S. and the 11-nation Trans-Pacific Partnership from which Mr. Trump withdrew the U.S., both taking effect next year —as giving them leverage by putting U.S. exporters at a disadvantage.
“The U.S. is showing a power play,” said Andre Sapir, a former EU economic adviser, now at the Bruegel think tank in Brussels. “I don’t think Europe will want to enter into such an agreement—it would want to have balanced agreement.” Japan and Germany, the largest auto exporters to the U.S. after Canada and Mexico, are bracing for U.S. demands for quotas as the price of avoiding 25% vehicle tariffs that Mr. Trump has threatened to impose in the name of national security.
Canada and Mexico accepted caps to fend off those penalties, an arrangement reminiscent of the 1980s “voluntary export restraints” the U.S. extracted from Tokyo before the WTO was created and banned the practice. Japan is also worried about the North American pact’s provision aimed at punishing “currency manipulation,” a first in a trade agreement. The U.S. has frequently accused Japan of distorting foreign exchange markets to boost exports. Tokyo has long fended off demands for trade penalties tied to such charges.
The U.S.-Mexico-Canada deal could complicate Britain’s emerging strategy for crafting its own independent commercial diplomacy once it breaks from the EU. Britain hopes to achieve separate free-trade pacts with both the U.S. and China.