By William Mauldin
WASHINGTON -- President Donald Trump is taking immediate steps
to reorder U.S. economic alliances in his first days in office,
setting up meetings with leaders from Mexico and Canada on North
American affairs and hosting U.K. Prime Minister Theresa May this
Friday to lay the groundwork for a trade pact with London.
Just two days after taking office, Mr. Trump said he would
follow through on plans to renegotiate the North American Free
Trade Agreement, or Nafta, the two-decade-old deal that binds the
U.S. economy to Canada and Mexico.
Mr. Trump's triumph in industrial states in November, which
proved key to his election, was helped by his set of economic
principles, and an "America First" message, which he emphasized in
his inaugural address on Friday.
In his campaign he blamed lackluster growth on bad trade deals
with China, Mexico and other countries that ship more to the U.S.
than it sends back to them. He has threatened to withdraw the U.S.
from the 12-nation Trans-Pacific Partnership, a trade deal that
Congress never ratified, and his advisers say the goal is to use
the threat of tariffs to win concessions from some countries, while
negotiating smaller bilateral deals with like-minded strategic
allies such as the U.K.
That approach will be on display when Mr. Trump meets Mrs. May
to address the latest shift in the "special relationship" with the
U.K. Negotiating and ratifying a deal with London won't come easily
or quickly, and serious procedural and political roadblocks could
postpone any such pact for many years or derail it entirely.
Still, even a year ago the prospect of a deal would have been
inconceivable while the U.K. remained firmly in Brussels's orbit as
part of the European Union and then-President Barack Obama was
seeking a broader agreement with the entire EU before negotiations
stalled last year. Mr. Obama, who also wanted to enact the Pacific
trade agreement, warned Britain would have to go to the "back of
the queue" if it voted to leave Europe.
Last week Mrs. May made it clear she wanted a firm break with
the EU, while Mr. Trump's inauguration means she has a willing
partner who prefers targeted, bilateral trade agreements to the
multilateral affairs his predecessor sought for their economies of
scale and strategic heft.
Mrs. May's key objective on her visit to Washington will be to
prepare the way for a trade deal that would buttress the U.K. as it
prepares for intense negotiations on exiting the EU. She said
Tuesday the U.K. would pull out of the EU's single market, where
nearly half of U.K. exports are sent, but she also set out a goal
of keeping the U.K. economy growing through expanded trade and
closer economic links with non-European countries, including the
U.S.
For now, the U.K.'s most important negotiation is with Brussels,
and the new emphasis on ties with Washington may be in part an
effort to remind Europe that London has strong links to other parts
of the globe. "She's trying to obtain and maximize leverage over
Brussels," said Dan Ikenson, who leads the trade studies center at
the Cato Institute, a Washington think tank.
The U.S. also has more pressing negotiations than a U.K. deal.
Mr. Trump on Sunday said he would follow through with campaign
pledges to overhaul Nafta, the trade agreement that became almost a
dirty word in the 2016 campaign. "We're going to start some
negotiations having to do with Nafta," he said, adding that he
would meet with Canadian Prime Minister Justin Trudeau as well as
President Enrique Peña Nieto of Mexico.
Mexico City and Ottawa have said they are open to talks on
Nafta, and a spokesman for Mr. Trudeau on Sunday noted the "depth"
of U.S.-Canada economic ties and said the two leaders pledged to
meet soon.
Mr. Trump's advisers are considering pressing for changes to
Nafta's rules for the auto industry in ways that would require more
of a car to be produced in North America and could possibly mandate
that a significant portion of vehicles be produced in the U.S. in
order to be shipped around the bloc duty free, according to two
people familiar with the plans.
With the U.K., American business and farm groups would probably
want to be sure that British tariffs on their goods don't rise
after the country exits the European Union.
So far many U.S. business leaders have been only lukewarm to a
trade agreement with the U.K., since any potential profit from such
a deal could be erased by barriers that spring up due to
Brexit.
"Until the context of that becomes much clearer, it's hard to
have a meaningful discussion of the contours of a U.S.-U.K.
free-trade agreement," said Mike Froman, former U.S. trade
representative under Mr. Obama.
For example, many large U.S. firms will have to decide if it
makes sense to keep their European headquarters in the U.K., since
the British offices could face new regulatory or other barriers on
the Continent. Many companies and farm groups had hoped Mr. Obama
would succeed in a broad trans-Atlantic tie-up that included the
European Union, retaining the U.K. in the framework if it
exited.
Under European Union laws, nothing can be signed or formally
agreed to with another country before the U.K. leaves, which is on
course to happen in March 2019. U.S. officials may want to wait to
see what kind of relationship the U.K. will have with the EU,
particularly on financial issues, before coming to any
agreement.
"It's about timing, and it's about watching to see what happens
between the EU and the U.K.," said Myron Brilliant, head of
international affairs at the U.S. Chamber of Commerce, the
country's biggest business lobby. "We're supportive in
principle."
Mrs. May's trade principles don't overlap much with Mr. Trump's.
She backs widespread trade liberalization, while retaining
sovereignty over immigration and other key national decisions,
while Mr. Trump defeated fellow Republicans and Hillary Clinton by
emphasizing the threat of tariffs for countries that don't
cooperate on efforts to trim the trade deficit. On Friday Mr. Trump
vowed that "protection will lead to great prosperity and
strength."
Still, Mr. Trump and his advisers have insisted they do favor
bilateral trade agreements to open up markets, and populist voters
that supported Mr. Trump and Sen. Bernie Sanders (D., Vt.) are
likely to have less opposition to a deal with high-wage countries
such as the U.K. than with those such as Vietnam, which was
included in the stalled TPP.
U.S. exporters could gain a bit by lowering or eliminating
tariffs on goods with the U.K., but coming to an agreement on
harmonizing financial regulations or other rules will be more
difficult and could cause negotiations to be lengthy and drawn-out,
experts say. Specific industries, such as agriculture for the U.S.
and insurance for the U.K, could be sticking points, but overall
Washington would probably face less opposition from the U.K. in
agriculture and services than it did in talks with the EU because
of similar approaches to those sectors.
"Some things could be easier," Mr. Froman said.
Christopher Meyer, former U.K. ambassador to the U.S., said the
negotiations will likely be protracted, even if Mr. Trump is
sincere in wanting a rapid trade agreement.
"I find it hard to believe that with the best political will in
the world, something that ought to be relatively simple, like the
U.K.-U.S. trade deal, can be negotiated to fruition relatively
quickly," Mr. Meyer said.
In 2015, the U.S. was the destination for a fifth of U.K.
exports of goods and services, some $124 billion.
Around half of those exports were services, including financial
and business services, telecommunications and travel, while
Americans also bought British-made drugs, electrical equipment and
machinery. After the EU, the U.S. is the U.K.'s biggest overseas
market.
U.K. opposition leader Jeremy Corbyn said the issue called for a
"serious discussion."
--Jenny Gross and Jason Douglas in London and Paul Vieira in
Ottawa contributed to this article.
Write to William Mauldin at william.mauldin@wsj.com
(END) Dow Jones Newswires
January 22, 2017 19:52 ET (00:52 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.