Politics & Policy

What Congress Should Insist On in Trump’s Trade Deal with Mexico and Canada

President Trump with Mexican President Enrique Pena Nieto (left) and Canadian Prime Minister Justin Trudeau at the USMCA signing ceremony in Buenos Aires, Argentina November 30, 2018. (Kevin Lamarque/Reuters)
Consumers and businesses alike want the threshold for taxes and duties on imports to be high, not low.

With a divided government and another presidential-election cycle already in full swing, it’s tempting to think that any priorities of the Trump administration are dead on arrival in Congress. However, do-nothing gridlock is not inevitable: The renegotiated NAFTA deal (the U.S.–Mexico–Canada Agreement, or USMCA) offers an opportunity for progress on important trade policies even in a heated and divided political environment.

The White House has launched a legislative-affairs offensive to get House Speaker Nancy Pelosi and recalcitrant Democrats on board with the agreement. This has raised the suspicions of some Republicans, who are concerned that Democrats will be granted too much latitude in negotiations and that the agreement will be soiled by left-leaning priorities. There are several reasons that Republicans should worry less about Democrats’ public posturing on the trade deal and instead focus their efforts on preserving consequential trade policies that could be affected by the agreement.

First, it is important to remember that the USMCA negotiations are closely governed by the mechanisms set up by Trade Promotion Authority, or TPA. Passed by a Republican-held Congress and signed into law by President Obama in 2015, TPA requires Congress to pass “implementing” legislation for any trade agreement to take effect. This bill may include only language that is “strictly necessary and appropriate” to conform U.S. laws to the agreement. This effectively limits what can be added to the agreement by Congress.

This is perhaps why some Democrats have called for reopening negotiations with Canada and Mexico, acknowledging they will be unable to write far-reaching changes into implementing legislation. The Trump administration has already said that is a non-starter, and, because a new administration has taken the reins in Mexico since the deal was inked, the Democrats’ demands would likely be unacceptable to the other partners to the treaty.

TPA also requires the administration to submit to Congress a list of changes that are required to bring U.S. law into accordance with the trade agreement. Unfortunately, changes to tax-free and duty-free treatment of imports under the “de minimis” threshold were included on list the Trump administration sent earlier this year. The de minimis level is the dollar threshold for imports at which duties, taxes, and other import barriers are enacted. Congress in 2016 agreed to raise this threshold from $200 to $800, acknowledging that the reduction of import restrictions on lower-value goods benefits American consumers and businesses. In fact, this position was so widely accepted, the 2016 bill to increase the de minimis threshold passed easily, with overwhelming majorities in both the House and the Senate.

While an outright reduction of the threshold would likely be prevented by the restrictions imposed by TPA, it is important that Congress protect the current standard in any implementing legislation to USMCA.

In contrast, any move to reduce the de minimis threshold would amount to massive new regulatory burdens for American businesses and increased costs in the form of new border taxes for consumers. In fact, a bipartisan group of senators sent a letter to U.S. Trade Representative Robert Lighthizer last year, raising concerns that a footnote in USMCA would allow Congress to raise the threshold. They cited widespread infrastructure and technology investments as a result of the lowering of the threshold and remarked that thousands of jobs had been created to support the commercial growth that resulted from the increase in the de minimis standard. Any move in the opposite direction would be to deleterious economic effect.

The new free-trade agreement is a rare opportunity for the Trump administration and the divided Congress to come together to enact meaningful reforms that would update the country’s trading relationship with its North American partners. The years-long march toward modernizing our trade practices would be completely undermined if changes were made to the de minimis standard in the USMCA. Not only was the current standard passed into law with bipartisan support, but diminishing that standard now would constitute a significant departure from the Trump agenda of reduced tax and regulatory relief for the American people. This Congress should similarly refuse to move backward toward dated standards for import thresholds. It should continue to embrace trade policies that make the United States a more competitive place to do business.

Mattie Duppler is a senior fellow in fiscal policy with the National Taxpayers Union and the president of the consultancy Forward Strategies.

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