Trump Administration Sets Stage for Nafta Talks

By William Mauldin Features Dow Jones Newswires

The Trump administration's tough new approach to Canada on trade is helping crystallize support in the U.S. Congress for renegotiating the North American Free Trade Agreement and setting the groundwork for the increasingly complicated negotiations, current and former officials said.

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The latest move against Canada -- a preliminary tariff of about 20% on softwood lumber -- also shows how President Donald Trump's administration is combining scathing rhetoric on trade with more moderate actions to protect U.S. industry.

The upshot is the Republican president's political base and like-minded lawmakers can take heart from Mr. Trump's protectionist message, even as big business leaders and foreign governments continue to hope the White House's bark on trade is worse than its bite.

The administration's strategy appears to be working domestically, but taking the rhetoric too far runs the risk of souring relations with Canada and Mexico and making it harder to strike a deal. Mr. Trump's insistence that Mexico pay for a border wall scuttled a meeting with Enrique Peña Nieto, Mexico's president, in January.

U.S. Commerce Secretary Wilbur Ross outlined the Canadian tariff action in an interview with The Wall Street Journal on Monday. It is the result of a previously low-profile trade case filed by U.S. producers and part of a longstanding dispute between the countries. The proposed lumber duties come after Mr. Trump, during a trip to Wisconsin, attacked Canada's system for protecting its dairy industry from U.S. imports.

The tariffs were largely expected after a previous agreement expired and Mr. Trump's administration didn't resolve the dispute through negotiations.

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"What we had tried to do was to clear the air and get this dispute out of the way before the big Nafta talks went on," Mr. Ross said Tuesday. "That was not possible to achieve."

Mr. Ross said the lumber dispute could bleed over into the dairy fight and other sensitive issues. "Everything relates to everything else when you're trying to negotiate," he said.

On Tuesday, Prime Minister Justin Trudeau of Canada sought to play down the possible fallout from the softwood tariff, Mr. Trump's warning on Canada's dairy regime and the potential ramifications all that might have on Nafta negotiations.

Trade irritants "are nothing new," Mr. Trudeau said in an interview with a radio station in the southwestern Ontario city of Kitchener. "We will deal firmly and reasonably with the U.S."

In a tweet on Tuesday, Mr. Trump wrote: "Canada has made business for our dairy farmers in Wisconsin and other border states very difficult."

Mike Froman, who served as U.S. trade representative in former President Barack Obama's administration, said the dispute gives the new administration the chance to tackle the irritants through Nafta, much as he sought to work out issues with Mexico and Canada through the unratified Trans-Pacific Partnership, or TPP.

"These are two of the most politically sensitive issues in Canada," said Mr. Froman, now a fellow at the Council on Foreign Relations. "I assume the Trump administration is laying the groundwork for resolving them once and for all as part of renegotiating Nafta."

The critical tone with Canada appeared to play well in Congress, where a Senate committee on Tuesday advanced Mr. Trump's nominee for trade representative, Robert Lighthizer, a Washington trade lawyer.

"We share the view that Nafta needs an upgrade," said Sen. Ron Wyden of Oregon, the top Democrat on the committee that oversees trade and a long advocate of a tougher approach to Canadian lumber. "Yesterday was a very strong message," he said, referring to the tariffs.

The dairy fight is allowing Mr. Trump to work directly with House Speaker Paul Ryan, a Wisconsin Republican, and Sen. Chuck Schumer of New York, the chamber's Democratic leader, on an issue that affects both of their states.

Still, the president's tone is raising tension across the border. Canadian officials had been hoping Mr. Trump would seek only moderate changes affecting them, rather than dragging issues that affect key lawmakers and border states onto center stage.

"It plays very poorly across the border," said Gary Hufbauer, senior trade expert at the Peterson Institute for International Economics, which backs free trade. "The risk is that this is not going to be a quick negotiation."

Some economists said Mr. Trump's administration may succeed with Nafta if the country's trading partners disregard the White House rhetoric and strike a deal that allows all three sides to have the ability to declare victory back home.

"He'll claim credit for a few things he'll get from the Mexicans," said Harvard economist Dani Rodrik, a critic of globalization. "It won't make much difference."

If that doesn't work, then Mr. Trump may have to decide whether to toughen his stance, offer concessions to the trading partners to bring them back to the table or follow through with threats to pull the U.S. out of Nafta, a step that could take about six months.

Mr. Trump spent the 2016 campaign criticizing trade agreements, including Nafta, and threatening to pull out of the 1994 deal that connects the U.S. economy with its southern and northern neighbors.

He withdrew from the unratified Trans-Pacific Partnership that Mr. Froman negotiated as part of Mr. Obama's administration, but overall he has gradually tempered his trade threats since winning the November election.

--Mike Bender, Paul Vieira and Bob Davis contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

April 25, 2017 19:45 ET (23:45 GMT)