Trade agreements act as bargains among nations. President Trump appears to desire the benefits of other countries’ negotiations without making corresponding concessions. When countries anticipate Washington’s desire to capitalize on their best deals without reciprocation, they may likely reduce their offers. This is evident in interactions with Brazil and Canada, where the U.S. accuses these countries of providing preferable treatment to other trading partners, using terms such as ‘discrimination’.
Brazil and Its Trade Relationships
Brazil, both independently and through Mercosur, has ‘partial scope’ agreements with Mexico and India that reduce tariffs on select goods. This results in Mexican and Indian exporters benefiting from lower tariffs than U.S. competitors. The U.S. Trade Representative has labeled these ‘unfair, preferential tariffs’, spotlighting Mexico’s advantages on over 1,000 tariff lines and India’s on hundreds more. Despite Congress’s longstanding scrutiny over whether such agreements comply with World Trade Organization rules, the broader issue raised by Washington suggests unfair disadvantage stems from others negotiating superior terms.
Canada’s Preferential Deals
Similarly, Canada’s agreements, like the Comprehensive Economic and Trade Agreement with the European Union, allow Europe preferential cheese access. Under the USMCA, the U.S. negotiated a different dairy arrangement. Nonetheless, Washington has invoked Section 338 of the Tariff Act of 1930 against Canada, framing more favorable treatment for European cheese as discriminatory. Even the creators of Section 338 acknowledged limitations. The recent failed discussions between the U.S. and Canada were partially due to demands concerning Canada’s future trade deals.
The Implications of Sections 301 and 338
The U.S. employs Sections 301 and 338 as unofficial ‘most favored nation’ clauses, expecting benefits negotiated by other nations without reciprocating. This approach parallels bilateral investment treaties that feature most favored nation provisions guaranteeing American investors no less favorable treatment than third-party investors. This concept implies taking advantage without payment.
Europe did not obtain Canadian cheese access for free; they negotiated the Comprehensive Economic and Trade Agreement and made concessions to Canada.
Mexico’s preferences with Brazil arise from reciprocal negotiations. If Washington insists on similar treatment merely to counteract competitive disadvantages, it acquires benefits without adhering to the original negotiated terms.
Revisiting Trade Principles
The postwar system has always balanced nondiscrimination and preferential arrangements. While the default is most favored nation status, qualifying free trade agreements permit deeper preferences due to their reciprocal commitments. The U.S. has significantly benefited from such exceptions, like the USMCA’s privileges to Mexican goods over Brazilian ones. Washington doesn’t automatically offer its advantages to countries claiming less favorable treatment.
A Call for Negotiation and Understanding
If Washington seeks the same privileges Canada grants another nation later, negotiation, rather than unilateral tariff measures, is the clear path. Failing at the negotiating table shouldn’t lead to retroactively altering commitments through Sections 301 and 338. Doing so risks undermining credibility and perceived fairness, which is particularly problematic if seeking future influence over Canada’s trade deals. Recent demands extend U.S. interest from simply benefiting from others’ bargains to attempting to dictate subsequent agreements.
Provisions like the USMCA mandating notification before engaging with non-market economies exemplify such reach. Washington’s agreement with Malaysia illustrates the requirement for consultation on any future deals potentially affecting U.S. interests, a term lacking clear definition. Historically, the U.S. maintained that access had to be earned through negotiation. However, the Trump administration’s approach threatens tariffs if others secure a better deal, pressuring partners without reciprocal negotiation.
This strategy diverges from conventional most favored nation practices and lacks true reciprocity, representing an enforcement of an unofficial clause against partners not formally committed to this arrangement.
Marc L. Busch, a professor at Georgetown University, and Barry Appleton, interim director at the Balsillie School of International Affairs, contribute their insights into these developments.
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