U.S. Could Consider an Exit From Mexico and Canada Trade Deal, Official Says

Jamieson Greer, U.S. trade representative. (Aaron Schwartz/CNP/Bloomberg)

Key Points

• The U.S. is considering all options for the USMCA trade pact with Mexico and Canada, including potential withdrawal.
• The U.S. trade representative emphasized a “constructive” relationship with China despite ongoing strategic rivalry.
• The U.S. aims to reduce its trade deficit and address China’s overcapacity, seeking cooperation from other countries.

The U.S. could consider leaving its trade pact with Mexico and Canada, as all options for the 2020 agreement are up for discussion, the top U.S. trade official said Wednesday.

Jamieson Greer, U.S. trade representative, said Wednesday that

The USMCA, which Greer helped craft during the first Trump term and covers $29 billion in trade with the country’s two largest partners, is entering a review period. While speaking at an event held by the Atlantic Council on Wednesday, Greer also stressed a “constructive” relationship with China and highlighted friction with the European Union over digital trade.

One sticking point for the USMCA could be rules of origin, or how much content must be produced in that country to get that country’s tariff rates. Greer said rules of origin for industries outside of autos would be an area of focus.

Analysts have wondered if the administration migh scrap the trilateral deal for individual agreements with each country. Greer said he hasn’t had any trilateral discussions with Canada or Mexico yet and stressed the differences in the relationships.

“There are going to be certain areas where a trilateral discussion could make sense—rules of origin being one of them, or to be aligned on external trade policies to some extent or critical minerals,” Greer said.

On other trade fronts, Greer declined to comment on the Trump administration’s backup plan if the Supreme Court rules against the tariffs imposed this year using the International Emergency Economic Powers Act. But he said the White House will be able to “roughly” make up the $200 billion those tariffs are estimated at bringing through other tariff related laws, including those looking at unfair trade practices.

Greer said one big goal of the Trump administration’s levies is to reduce the trade deficit. While Greer noted the U.S. trade deficit with China has narrowed since August, China just logged a record $1 trillion trade surplus with the world for the first 11 months of the year as it has increased its sales to the rest of the world—with some of those exports coming back into the U.S. through rerouting.

Greer says trade with China needs to be managed. There’s a debate under way in how to handle the growing strategic rivalry with China. On one side are those in Washington, D.C. who see Beijing as a major national security risk and advocate working with allies to reduce ties with China. On the other are those trying to derisk but maintain much of the close commercial relationship built over decades.

“People in Washington like to talk about China hawks and China doves. That is a distinction that doesn’t really resonate with the Trump administration because we’re just pro-American. We’re America First,” Greer said. He added that President Donald Trump is focused on having a “constructive” relationship with China, and that the president’s interest is not “in blowing up everything.”

Trump on Tuesday eased export controls this week on China so that Nvidia can sell its H200 artificial-intelligence chips in the world’s second-largest economy. That move has added fuel to the debate between national security hawks who have been trying to limit Beijing’s access to advanced technology and those who want to increase the usage of U.S. chips as part of the strategic rivalry between the two countries.

Greer said it is in every country’s interest to push back against China’s overcapacity and the excess exports that threaten countries’ own industrial bases. The deal the U.S. reached with Malaysia in October includes provisions calling on the country to copy restrictions the U.S. puts on a third country—which most analysts interpret as China.

Greer said that deal signifies the importance of economic security, helping ensure that the benefit of a trade pact goes to the two parties involved and gives the U.S. some control to address transshipments or rerouting of trade. He also said that if a situation arises where the U.S. wants to take broader action against a third country—such as China—there’s an option to get others to work with the U.S. on issues.

As for other pending trade negotiations, Greer said Trump has had “several very constructive interactions” with Brazil’s President Luiz Inácio Lula da Silva and said the U.S. would like in the near-term to have some sort of deal with Brazil, even if it doesn’t address every problem.

With Europe, Greer said he was disappointed that European Union has shown “zero moderation” in its digital tax and treatment of U.S. technology companies, suggesting the EU hasn’t been willing to compromise on loosening its regulations toward those firms.

Write to Reshma Kapadia at reshma.kapadia@barrons.com