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North American trade deal still faces hurdles after metals tariffs removed

President Donald Trump's decision to remove tariffs on imports of Canadian and Mexican steel and aluminum marks a major step toward the passage of the United States-Mexico-Canada Agreement, or USMCA, but it could embolden Democrats to make more demands on labor rules to pass the trade deal.

Some Republican and Democratic lawmakers, as well as the governments of Mexico and Canada, had all called for the metals tariffs — 25% on steel and 10% on aluminum imports since June 2018 — to be removed before the three-way trade deal that would update the North American Free Trade Agreement can be passed. The USMCA needs to be approved by all three countries to take effect.

Sen. Chuck Grassley, the Iowa Republican who has been perhaps the most vocal of his party in advocating for the metal tariffs' removal, said following the Trump administration's decision to rescind the duties that "the biggest hurdle to ratifying USMCA has been lifted."

"Lifting these tariffs clears the path to passage in all three countries," Grassley said. "I'm optimistic that this renewed sense of momentum will carry USMCA across the finish line."

'Long way to go'

But not all were convinced that the removal of tariffs would be enough to repair the self-inflicted harm done by the sanctions.

The odds of passage are still only about 30%, according to Peter Allgeier, president at consulting firm Nauset Global LLC and a former deputy trade representative and U.S. ambassador to the World Trade Organization, put the odds of passage at 30%. "They still have a long way to go, and I'm not convinced they're going to get there by the end of the year," he said in an interview. "This was an unusual recognition of reality by the Trump administration."

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Senate Finance Committee Chairman Chuck Grassley said the removal of metals tariffs on Mexico and Canada "clears the path" to the ratification of the United States-Mexico-Canada Agreement.

Source: The Associated Press

While one hurdle has been removed, it could open the floodgates for stronger demands by Democrats, who are seeking changes to the text of the deal itself, not just the metals tariffs, which came as a result of a separate U.S. Department of Commerce investigation into whether the imports pose a national security risk.

"It could be a signal to Democrats that we can ask for something from Trump and [U.S. Trade Representative Robert] Lighthizer and maybe get it," Inu Manak, a visiting scholar at the Cato Institute in Washington, said in an interview. "It might embolden them to be strategic in what to ask for and push for that."

House Speaker Nancy Pelosi, D-Calif., who would be responsible for introducing the USMCA bill to the House, has voiced her concerns on labor provisions, enforcement of the deal — particularly in Mexico — and drug prices. Pelosi's office did not return a request for comment.

Rep. Debbie Dingell, D-Mich., told Fox News on May 19 that stronger enforcement of labor regulations and pharmaceutical provisions that she said would increase the cost of prescription drugs are holding up her approval of the deal. "I'm not there yet," she said.

The Mexican Senate on April 29 passed measures that would strengthen labor unions by allowing for secret ballots and prohibiting employers from retaliating against workers for union activity.

"Prior to [Trump] putting hostile and harmful tariffs on Canadian steel and aluminum more than 99% of all trade with Canada was tariff free," Bruce Heyman, the former U.S. ambassador to Canada, said in a tweet. "We can now go back to what trade was before Trump's horribly wrong tariff tax."

Tyson Foods, Swift Pork

Perhaps no group has suffered as much in the North American metals spat as U.S. farmers. Products such as pork, cheese and apples — top agricultural exports to Mexico — were all targeted by Mexico in the spat over metals tariffs.

According to Panjiva, a division of S&P Global Inc., Mexican retaliatory tariffs caused U.S. meat exports to fall by 26.7% year over year in the three months ended March 31, while fruit exports to Mexico fell 17.8% in that span and cheese exports to Mexico fell by 14.3%.

U.S. companies have suffered as a result, including Tyson Foods Inc., whose shipments to Mexico fell 32.4% year over year in the first quarter of 2019. Swift Pork Co., meanwhile, saw its sales to the U.S.'s southern neighbor fall by 31.9% year over year. As a result of the metals tariffs' removal, Canada and Mexico removed their retaliatory tariffs beginning May 20.

Chris Rogers, research director for Panjiva, said these companies, along with others targeted in the spat, will be among the short-term beneficiaries.

Farmers for Free Trade, a lobby group, said the move was a step "toward returning certainty to our farmers."