Trump Wins: Trade Strategy Under His Administration

Amar Breckenridge: Hello everyone, and welcome to this edition of the Trade Knowledge Matters podcast, Our, regular podcast on all things connected to international trade policy. In today’s episode, we will be looking at global trade policy issues in the wake of the US Presidential and Congressional elections. Well, Donald Trump will soon be back in the White House and his Republican Party has taken control of both chambers of Congress. As in previous campaigns, President elect Trump made trade policy an important part of his campaign pitch. In particular tariffs, which he called the most beautiful word invented. Now, regular podcast listeners will recall that two episodes ago we spoke to Bill Ranged and we examined both Republican and Democratic Party attitudes on trade and how these had gravitated towards a more protectionist orientation and in favour of tariffs, amongst other things. But the new administration’s enthusiasm of tariffs is on a different scale. President elect Trump would like to impose a 20% tariff on all imports, up to 60% on China. And there’s a promise or more to come as well. In President Trump’s world, tariffs are a multipurpose instrument. They seem to be a sort of Swiss army knife of economic policy. In the first instance, they are seen as remedying what he considers to be a grievous harm the existence of bilateral trade deficits between the US and various partners, notably China, Mexico, Canada and various member states of the European Union. He also sees tariffs as a key element of resing production in industries such as automotives and others such as steel, which are deemed to be strategic and or have political clout. But tariffs serve a wider strategic purpose in the eyes of the new administration. Ah, President elect Trump would like to quot smash Mexico with tariffs because of alleged failures to secure its border with the United States. Similarly, Canada could be in the crosshairs of tariff action because it’s failing to live up to Trump’s demand that it increased defence spending as part of its NATO commitments. And finally, this enthusiasm for tariffs is just the visible tip of rather large iceberg. And what lies beneath is a more deep seated rejection of trade liberalisation and trade rules, specifically WTO rules as an instrument both of national and international economic governance. As we have observed before in this podcast, the of bipartisan consensus in the United States that trade rules were, worth following even when it was inconvenient to do so because they disciplined broke. Protectionism at home and overseas is now a thing of the past. So understandably, the US trade partners are deeply concerned about these developments and perhaps less visibly so are other parts of the US business community and civil society. Tariffs, after all, are a regressive form of taxation and tend to push up prices. Recent modelling by Sussex University suggests that Trump proposals would cost on average, around $2,000 per American household per AH year. And for businesses, a tax on imports is a tax on exports. That’s a long standing principle of economics. And that also means that export oriented parts of the United States stand to lose. And that’s before we get to the issue of retaliation in a full scale trade war. So all this makes for uncertain and troubling times, or interesting times, if you follow the old Chinese proverb. And to help us navigate this, I’m delighted to welcome two eminent experts to this podcast and I’d like to introduce them in turn. Starting with Professor Meredith Lill, who is the Simon Raisond Chair in International Economic Policy at Carletton University in Ottawa, Canada. And Professor Lilly’s research focuses on Canadian trade policy, particularly Canada, U.S. and North American trade relations. She previously served as Foreign affairs and International Trade Advisor to the Canadian Prime Minister Stephen Harper. And she’s been directly involved in negotiations of several major trade agreements including Canada, Europe, a free Trade agreement and the cptpp. also with me today is Simon Lester, who is an eminent expert in international trade and a former speaker on this podcasting. And he is the founder of the trade law and policy website worldtradlaw.neta and Chinat Trade Monitor and is a non resident fellow at the Baker Institute. Simon previously worked at the World Trade Organisation and the Cato Institute. He has taught trade law and policy classes at several law schools in the United States and elsewhere. Simon and Meredith, welcome to this podcast. It’s good have you with us.

What routes might the President follow to levy tariffs

And let’s start then with this issue of tariffs. Much has been made of this promise to levy tariffs on all partners, particularly on China, and partners that have a bilateral trade surplus with the United States. Now, in principle, tariff setting authority lies with Congress, not with the President. But there are also various provisions under U.S. law that give the executive branch authority to levy tariffs. These include notably sections 201 and 301 of the Trade act and sections 232 of the Trade Expansion Act. And there’s also the International Emergency Economic power Act of 1977. So what routes might the President follow to levy tariffs and how could this affect the outcome?

Simon Lester: Good.

Amar Breckenridge: For example, congressional oversight. A tariff setting have an impact, particularly if you consider that certain constituencies might be adversely affected by tariffs. And could the opportunity for industry to comment on executive action also play its role? I might begin with you Simon, with that question.

Simon Lester: Well, thank you very much for the question Amar, and good to be here with you and with my friend Meredith talking about these issues. I think perhaps I’ll start by saying the simple answer to what routes may the President follow is all of them. you’ve laid out a number of statutory options that President Trump will have at his disposal. There are a few others as well. So you have the traditional anti dumping countervailing duty and safeguards options, the so called trade remedies. You might think, well it’s hard to ratchet those up any more than they’ve already been ratcheted up. But there’s always a way. If the Trump administration folks want to intensify the use of AD CBD and safeguers, they can do that. Section 301 determinations, that is the route that the Trump administration focused on last time or of one of the main things that they focused on last time. they could go forward with additional section 301 investigations against China or others. they could simply make use of the, with regard to China, simply make use of the previous section 301 determination finding China’s tech transfer, practises, to constitute unfair trade practise. they could use section 232 relig national security. Again the new things they, they might try the aepa, the International Emergency Economic Power act. That is not, is a bit untested in this area. so it would really be pushing the boundaries of what’s possible. it’s not clear what the courts would think of that boundary pushing but it’s certainly been rumoured that the Trump administration is thinking about those things. I did want to point out that in addition to all of these statutory possibilities, there’s been talk of congressional legislation to raise tariffs and that is kind of a big deal. It would be a different route, something not done during the previous Trump administration. Because if Congress steps in to raise tariff rates and make them part of the U.S. terrifor schedule, that has more permanence. It’s a bit harder to undo. It’s a different approach. One of the things that people suggest with regards to Trump strategy on tariffs is that he’s using them as negotiating leverage, you know, threaten these tariffs and you know, unless you, if you do what I want then I’THEN I’ll pull them back. But if Congress puts higher tariffs in the US Tariff schedule, it’s hard to see any negotiation coming out of that that just becomes permanent. Most likely you practical terms. And then other countries are likely to Retaliate and we just get a sort of permanent ratcheting up, you know, Smoot Holley style. Higher tariffs by the US than higher tariffs others. So that’s kind of a big deal if that happened. I’m not sure that it will, but I know others’s talk about it now. You also talked about what the opportunities are for affected industries to moderate these effects. Yeah, I mean, absolutely. If you are a company that’s could to be affected by this, I would say, call your lawyers and lobbyists right now. They’re practically speaking, yes, when you have tariffs you have ways to avoid the tariffs. if you are, if you can work this system well enough. So if you know someone who knows Donald Trump or, or a member of his family, if your son played on Baron’soccer team, you know, start making calls right now. This, this can help you and you should work the system as well as you can. it seems unlikely to me, I know there’s been talk Trump sometimes suggested universal tariffs. It seems unlikely to me you’re going to end up with a pure across the board tariff on all products from everywhere. I think there will be carve outs, there will be exemptions for people who know how to, to play the system. and just as a sort of general comment, I mean that is the nature of using tariffs. There are, are sort of theories of how tariffs can be used to promote domestic industry. But in practise what you get in sort of in a, in a pure way, but in practise what you get with, with tariffs

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Simon Lester: is people and companies who are well connected and well resourced have an advantage. And a lot of the implementation of tariffs, gets away from any sort of grand policy about what we want to do with the economy and ends up being company specific manipulation of tariffs to benefit you and harm your competitors.

How will the administration define national security? Meredith: Interesting question

Amar Breckenridge: Thanks Simon for that overview. And ah, Meredith, is there anything you’d like to add to what Simon just said?

Meredith Lilly: Yeah, thanks. Just a couple of things. Kind of from the perspective of a country like Canada that is a, very close trading partner with the States. I mean it goes without saying, I think all countries are going to be following really closely the scope and the breadth and the depth of what the tariffion might be and that really will be quite important for what a response is from a country like Canada. So some of the things we’ll be watching are, are these going to be sector specific tariffs, are these going to be broad tariffs, are they going to be primarily aimed at China and is that a policy we can contain and manage, or is this going to be broadly affecting a number of countries? When you look at the kind of tools that they may use that Simon went through something like the 232 tariffs. How will the administration define national security? It was defined pretty broadly last time under the Biden administration. There was a textile ruling that, that was determined to be a national security ruling. So if we’re in the world of socks and underwear and rugs and, you know, that kind of product is all subject to national security tariffs, then that’s a very different picture for, for how we might respond. The only other thing point I would make now is, is that for a country like ours, there’there’s a chilling effect of any tariff, no matter how small, when we have a broad free trade agreement in place like we do. And I think that’s part of the plan by the Trump administration. So they want to make importing more expensive for Americans and less attractive. And part of this is to spur domestic manufacturing, but it’s also to create a chill on companies’s bothering you get to a certain level of complexity in your import export picture for your supply chain, then you start to just turn away from it entirely. And this is what you see with sanctions. For instance, with Russia and other countries. When sanctions start to be rolled out in a fairly broad way, then the easiest thing to do is just to sort of stop importing from that country entirely. And I think that’s actually part of the bigger game, plan.

President elect Trump has talked about imposing tariffs on Canadian and Mexican exports

Amar Breckenridge: Thanks, Mered. That leads us on quite, nicely to the next question. You talked about the chilling effect and how that impacts on partners. If you looked at a heat map of who’s at risk, Canada and Mexico are clearly jurisdictions that ought to be concerned, have steady trade surpluses with the U.S. around 70 to 80% of their exports go to the U.S. and President elect Trump has explicitly talked about levying tariffs on both. So what might be the risk mitigation strategies that Canada and Mexico can adopt? I mean, short of telephoning Baron Trump, are there other ones that might come to play? It might start with you, Medith.

Meredith Lilly: Sure, I’m going to start with Mexico. And before I get too deeply into it, I do want to say at the outset, I am a North Americanist. I believe in trilateral trade. Having said that, at tough times are coming from Mexico and, you know, there’s a series of things that Mexico needs to worry about. One of those things is around, so if I’m thinking about what would be in Mexico’s best interest in terms of trying to respond to some of the potential action. Chinese FDI in Mexico is getting a lot of attention. I think it’s important for people to be aware that it’s actually really dwarfed by FDI from the United States and Canada. So the United States is the biggest investor in Mexico. And so to the point you made, when US firms invest in Mexico and if there’s tariff placed on Mexican exports that’s taxing American firms first, I think that won’t be lost in the picture, but it may be at to Simon’s point, maybe there will be some soccer playing children that, you know, CEOs can, can call. but so that’s one thing those US interests will be speaking quite loudly, I think, to anyone they can in the Trump administration. I think they also need to be, US firms need to be defending that fdi, that, that they are investing in Mexico and if they can’t do that, then the tariffs will be coming for them. So that’s one of the things Mexico could do. And I’m sure Simon has some other ideas as well. When it comes to Canada. Yes, we have a trade imbalance with the Americans. It’s about 80 billion. It’s important, I think, to be aware that it’s entirely due to energy, Canadian energy exports to the United States and that’s due at the moment to very strong oil prices. So we didn’t actually have the same picture five years ago. And then the other thing is that the US is, we are the US’s largest export destination. And that does matter. They care about trade imbalances. And while we do have an imbalance, we also buy more than anybody else from Americans. I think though, if we were to find a way to explain that, that tariffing

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Meredith Lilly: energy is a bad idea, that this doesn’t really advance the objectives that his administration is s likely to put forward for why they have a tariff policy. It really just makes energy more expensive for Americans and more expensive for the firms that are using Canadian energy. So I know that that picture, that story is being told already by Canadians and will continue to. And, and then I think another, another thing that helps insulate Canada a little bit is that the United States is predominantly concerned about the loss of manufacturing jobs going to low wage jurisdictions. And Canada shares that concern. So in that respect, we’re a little bit less of a target than some other jurisdictions, I think. So I think that there are some, some good stories to be told there. At the same time, I know that we will be lining up to, to improve our, our NATO spending problem. I think you’ll see announcements in the coming weeks of Canadians buying large military weaponry from the Americans. And I think there will be a conc. Considered effort to be loud about that.

Simon says Canada and Mexico should be firm on trade negotiations with Trump

Amar Breckenridge: Thank you. Simon, over to you.

Simon Lester: So I agree with all the specific things that Meredith’s just set out. I just want to offer maybe some general thoughts about this. One is, I would say to Canada and Mexico and everybody else out there who’s trying to sort out how to react to what’s coming from the Trump administration on trade. I would say there’s no need to be too prickly about things. Try not to get into public fights in the media. It’s going to be tempting and there’s going to be criticism coming your way. And sometimes people feel like, well, we, you know, we need to look tough, we need to push back hard. I don’t think that gets you very, very far. So I would avoid it. I would say just sit down with the Trump folks, listen to what they have to say. Listen to their, their actual demands in you know, private, as opposed to getting into, you know, media squabbles. But once you’ve heard that the actual demands from, you know, the negotiators, as opposed to what Trump put out there on social media, then I think you have to be firm. What I would do if I were any other government trying to deal with this, is to make clear to Trump’s trade negotiators that you can’t sign on to a deal that you can’t sell back home if it looks unbalanced, it will hurt you politically, at home and that won’t work for you. So, so any deal needs to have something both sides can tout as a win. And to get those wins, I think it’s important for Canadian and Mexican and other negotiators right now to come up with some things that you want out of this. You’re going to get a lot of demands from the Trump administration. What do you want in return that you can sell as this is a win. This was a balanced deal. I stood firm against, the powerfully the United States and the bullying Donald Trump. So come up with some things that you want that you can sell as a win. I would not advise caving to demands from the Trump administration because if you cave this time, they’ll be back for war. So I don’t think that there will not be deals that are just totally one sided. Canada, Mexico, others have to be able to get something out of this. Having said that, also, I want to add, if you’re going to be tough, somewhat tough like that, if you’re going to play a bit of hardball, you have to be prepared for Trump, the Trump administration taking some extreme actions in response. Trump could withdraw from usmca. That is possible. I don’t think it’s likely, but I think it’s possible. So if you are Canada, Mexico, trying to push back, trying to get a deal that that’s somewhat balanceding, you can sell at home, be prepared for, Trump’s just going to withdraw or Trump’s goingn impose 20% tariffs on you. Just be ready for that psychologically, be ready to explain it, be ready to tell, you know, your constituents, why that happened.

Each country is in a unique political situation domestically ahead of NAFTA negotiations

Just want to mention two other things here that interest me about, the U.S. canada and U.S. mexico negotiations that are going to go on. Each country is in a unique political situation domestically, and I think this will play into the negotiations in some way, but I’m not sure how. So I’m just sort of raising it as an issue, but I don’t, I don’t really understand the implications from it. So Mexico has a new incoming president, trying to establish herself, wanting to start off looking strong and competent in effective. So she has an incentive, I think, to approach talks with, with the United States in a certain way. So he wants to establish yourself as somebody who’s a president that has control of things and that people should follow. You don’t want an early big loss or looking weak in negotiating with the United States. So that, that’s from the Mexican side in Canada. My Canadian friends and Meredith can either say this publicly or not, depending what you wants, but my Canadian friends in general all seem to think that, next year the Conservatives are going to take power in Canada. And that just makes me wonder how the negotiations are going to go. While you have the Trudeau administration maybe just hanging on for a few more months. It may be that the Trump administration thinks, you know what, we’ll have an easier time negotiating with the Conservatives if and when they take power. And again, people, Canadian friends of mine all seem to think it’s going to happen. So let’s just wait it out and, you know, wait till the Conservatives

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take power and then start talking to them. So those are just two, kind of internal things going on within Canada and Mexico that seem like they could have an impact on where things go in these negotiations.

Meredith Lilly: Can I just respond to something that Simon said? yeah, I agree completely with his comments. But when it comes to Mexico, it also reminds me of the likelihood of linkage of non trade issues with other domestic files in the United States. So migration is the big number one issue that, that Trump has said he’s going to deal with on day one. And that’s going to have a major impact on Mexico and the Mexican border. And so there are other major reasons that trade is likely to be impacted as part of a, you know, a big package of negotiation, because that’s how Trump has operating in the past. I don’t think it would be any different this time. And even to some extent, that’s what the Biden administration did when it came to not advancing the energy file, the dispute settlement file under USMCA. Most speculated that this related to seeking AMLO’s support on the migration file as kind of quid pro quo for not touching the energy file. And so I think that we’re going to see a continuation of non trade issues, overshadowing that relationship in a big way.

Amar Breckenridge: Thank you.

The USMCA has a sunset provision unless partners agree to renew it

so we mentioned USMCA a few times, which I suppose over and above the ad hoc negotiations that might take place, offers a framework for parties to negotiate on these matters. One of the little understood features of the USMCA is that it has a sunset provision. The agreement lapses by 2036 unless partners, agree to renew it. And the first opportunity to do that will be the six year review in 2026. There’a degree of pessimism whether partners will choose to renew at this early date. And Simon, you mentioned that the threat of withdrawal from USMCA is something that might be brandished reasonably quickly. So in this context, what might parties bring to the table, especially given the wider context, both economically and politically? And is there any way in which the USMCA process can carry broader lessons on how to negotiate with the US and the current circumstances Marriage that might start with you again.

There are several issues that will come up in USMCA review

Meredith Lilly: So the first thing I would say is that we already the goalosts were moved immediately around the six year review such that everyone in the United States calls it a renegotiation. So they’ve dropped the language around review before it’s even started. You know, there are many in the trade community that are pushing to talk about the good things of USMCA and the reasons that the agreement should remain more or less intact. And all of that is true. And those are good efforts and we should keep saying those things, but getting real about it, you know, there’s a, series of issues that are definitely going to come back all three countries have lost at least one dispute through the dispute settlement process. Mexico has lost cases, has largely complied with those formal rulings that you know, a number of rapid response mechanism rulings on labour, for the most part Mexico has complied with those. Canada had dairy rulings against it. Canada appealed and is in the process of complying with at least parts of that ruling. The United States law of ruling on auto rules of origin. And there is zero expectation that the United States is going to implement that ruling. So the United States wins even when it loses. And that kind of US exceptionalism that exists within the agreement because of its outsized leverage, you know, is, has always been there and continues to roll out this time round. So one thing that in Canada that we are aware of is that the majority of complaints that the Americans have with USMCA are with Mexico. They’re largely around labour energy reforms as well as the GMO corn case, which now the ruling exists, it’s with the parties and will be released. And the concerns with Canada are certainly important, but they are relatively small by comparison. The dairy implementation of the tariff rate quota allocation process is something that I do think will require additional changes. We increasingly have engaged in digital activism though since USMCA was negotiated. And so we currently have now signed and implemented and brought into force a, new digital services tax that is not going to be popular with the Trump administration. It’s not popular with the Biden administration. We also have brought in something called an online streaming act that affects major streamers like Netflix and Amazon and that kind of thing, and imposes fees. If it weren’t for Canada’s cultural exemption, this act would certainly violate usmca. And so these are some of the things that will definitely come up in a review. I think I would revise my view on the auto rules

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Meredith Lilly: of origin issue, not just because the US insists we all change our framing around it, but because I do think that since we renegotiated usmca, the Inflation Reduction act and the major investments in that in the United States, which have also now impacted Canada, do really change the picture around rules of origin and electric vehicles. In addition, the national security rulings that are coming down around connected cars, all of this I think does need to be reflected in usmca. And so the six year review and the lead up to it, it would make sense to me that all three countries work together on an agreed trilateral picture for the trilateral supply chain around vehicles. I do want to mention though a couple of our offensive interests because to Simon’s point, we better have our list ready. So, you know, we do have offensive interests around energy exports. We also, you know, supply a lot of natural resources that are of value to the Americans. Increasingly, the Americans want to be, want to have independence around critical minerals. Well, they can’t do that without Canada. And so there are exports that, that Canada has that really are of value. And I think increasingly we should be finding ways to leverage our strengths with other things that we want to achieve in the negotiation and that we shouldn’t just be giving those things away for free. So if everything becomes a linkage with this administration, we, we need a game plan to do the same thing in Canada.

Amar Breckenridge: Right. Thanks, Simon. Would you like to add to.

Simon Lester: So I agree with everything Meredith said and she’s covered it very well. I don’t think I have too much to add, just a, couple points maybe to reinforce or supplement things that she already said. In terms of what others can learn from the USMA renegotiation, you know, I think that the USMCA renegotiation, this review is going to take place too late for anyone to learn anything. It’s more going to be, you know, there are going to be other actions that happen sooner that everybody will have to deal with. And I think Canada and Mexico will learn a bit from that and be able to maybe use that in their participation in the USMCA renegotiation. I mean, I don’t know what exactly the time frame is for all these things happening. Is it day one? Is it day 100? It’s going to be pretty soon. I think there’ll be pretty soon in the Trump administration. You’ll have tariff threats and tariff actions and governments come to the table and having to figure out how to deal with it all. And so the USMCA renegotiation is really. I mean, I don’t know when exactly they’ll start sitting down talking, but. But it’s July 1, 2026 is, the sort of nominal date as to when things will happen. All the things could start going before that.

China will be a big issue in the USMCA renegotiation

Meredith mentioned a lot of, disputes, existing disputes. I m don’t know there’s anything more to say about those. I did want to mention there’s been talk of concern in the U.S. about the, the Mexican changes to its judiciary, which is sort of a complicated issue that I’m not sure I fully understand and could explain. But there are concerns about the reforms going on in Mex/XXCO right now. And some have suggested there’a there could be a problem to the usmca. I’m not sure specifically what that problem is, you know, what provision of the USMCA might this violate, but nevertheless, I just want to point out this is. People have talked about this as a possible USMCA violation. It could be something that is discussed in the context of the USMCA review slash renegotiation. And one, one additional point to add is just sort of the obvious, China. China. China is an issue everywhere and China will be a big issue in the USMCA renegotiation. It was interesting just the other day listening to, Deputy Prime Minister Christia of Freeland make the point that Canada is closely aligned with the US on, on China trade issues, whereas Mexico is not. People characterise that different ways. I think somebody said throwing Mexico under the bus. I don’t know if that’s perfectly, if that’s the best characterization, but I see what they were getting at. And so the question will be, as part of the USMCA renegotiation, what exactly is said about China? You know, do they do other new provisions of the USMCA required, or is it just sort of an informal push on Mexico to restrict trade and investment with China in ways that are a bit more aligned, with the us? I mean, that’s something that’s been going on under the Biden administration. I would expect that it intensifies a bit under the Trump administration.

Meredith Lilly: Can I just add two points to that? I agree. I think Simon’s right that China will be the fourth country in the room. And I do expect the, at a minimum, the auto discussion to have fairly explicit provisions around Mexico’s trade with China as a result of that. And then another thing I wanted to mention is that the breadth and depth of the negotiation atit large also depends a little bit on Congress. And so this is why the broader result, where the Republicans have now taken both the House and the Senate, it does mean that trade promotion authority, which would be required in order to make any market access, to negotiate market access gains for the us that would be required and is something that

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Meredith Lilly: would be conceivable under, this Congress. I don’t know if Simon has any thoughts on whether they will seek tpa, but it does impact how big the negotiation could become, I guess.

Simon Lester: Let me try to offer some, some, some thoughts on this. This is very instinctive and not based on any actual information, but I’m sceptical that they will seek trade promotion authority. I’m sceptical that there will be any market access granted by the United States which requires trade promotion authority. So I, I think the Trump administration will interpret, the USMCA implementing the legislation in a way that they can do anything they want without Congress. Now is that the right interpretation? I don’t know. can it be challenged in court? Probably not. You know, can Congress take action to push back against Trump administration? In theory, yes, but in practise, no. So I guess my instinct is, and this is very early on, and we don’t know is the Trump administration will decide what it wants to do in the USMCA renegotiation and will tell Congress what it’s doing. And if Congress is, if somebody in Congress is not happy, they can vent about it. but Congress will be pretty ineffectual here in practise now. You never know. I suppose things could go in a different direction, but I just, it doesn’t seem to me like Congress is going to be able to assert itself here very much. I mean, I think there can be kind of informal pushback. You know, this particular member of Congress has a little bit of influence on this issue. But broadly speaking, the Trump administration will come up with a plan, we’ll go forward with it, tell Congress what it is, that’ll be the end of things.

Amar Breckenridge: Thank you.

Other hot topics include tech regulation and access to minerals

Moving on a bit, we’ve focused a lot on tariffs, which has obviously been the high profile issue in the recent election campaign. But modern trade policy is a lot more than tariffs. Services are another example and obviously services can’t be terrified. The US is the largest exporter and importer of services in the world and services are very closely linked to manufacturing. Around 30 to 35% of the value of US manufacturing sports is actually made up of embedded services inputs. Other hot topics include access to critical minerals, ah, trade in high tech sectors, including artificial intelligence, digital and tech sector policies. And Meredith, you mentioned the implementation by Canada of taxes on digital services, which could irritate the US if we look at the broad sweep of trade policy outside of goods. What might be the approach of the new administration to these issues and how could partners respond? Simon, I might start with you.

Simon Lester: So I’m going to start with tech regulation. I think it’s a good illustrative example. It was interesting. I found it interesting that the Biden administration and U.S. trade represent of Catherine Ty seemed okay with a lot of foreign digital regulations. and this was sort of a sharp break from m past US policy that would push hard against foreign regulations in general, digital regulations in particular. That that interfered with U.S. exporters, with U.S. companies selling abroad. They seemed more deferential to it and made kind of nuanced distinctions between regulations that just had a disparate impact on foreign, companies versus, regulations that were actually intended to protect domestic producers. They tended to support regulation of the tech industry and taxation of the tech industry. And they wanted to leave domestic policy space for this. Even abroad. They wanted to preserve domestically and they wanted foreign governments to have that policy space too. I think the Trump administration is likely to have, have a reversal on this. And we’ve seen former Trump administration officials talking in the media critically about, digital regulation and Korea and the eu. Interestingly, even though the Trump administration, is clearly going to be sceptical about a lot of trade and about imports, there are people within the administration. I’m not sure what Donald Trump thinks about all this, but people within the administration are likely to want to use US Economic leverage to pry open foreign markets. Traditionally, in recent years, this has been done through, enforcement under trade agreement. So WTO complaints or USMCA compl. The Trump administration might do this more unilaterally. You know, this is the way they tend to operate is just say, look, we don’t like this Korean digital regulation or this European digital regulation, this Canadian digital services tax. If you go forward with it, we’re going to impose tariffs on you. so you, what you’re seeing, what you’re going to see is maybe a reversal from the Biden administration’s deference, to foreign digital regulations, to something much less differential and then also something unilateral in terms of, the enforcement mechanism. Now, if for the foreign governments who are going forward with these regulations or taxes, they’re going to need to decide how strongly they feel about these regulations because they’re going to get a lot of, tough pushback. If they’re determined to go forward with these regulationulations and taxes, well get

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Simon Lester: ready for the tariff retaliation and be prepared to either accept the retaliation, live with it, or to retaliate against the retaliation. So that, I think is tech regulation is sort of an illustration of this sort of broader change between the Biden administration and the Trump administration. I think the Biden administration, although they put out some, fact sheets to try to counter this, but I think it’s fair to say they were not particularly concerned about market access, the access of US Companies to foreign markets. Whereas the Trump administration, they clearly want to restrict your imports from foreign countries into the US but they are interested in market access for US companies selling abroad. and that’ll be a big change. Tech regulation is one example, but I think there’be other. Other fields, other sectors as well.

Meredith Lilly: Yeah, I completely agree with, with Simon’s take, I might go even little further. I think that the Trump administration is going to break from what Simons characterises as deference from the Biden administration, where in some ways it almost seemed like they were willing to see how other countries were able to discipline Big Tech without major intervention from. From the us and now we’ve got some very, very influential major donors to the Trump campaign who are going to formally be part of his administration. And I think they’re going to push back really hard. I think the US is also going to seek when they. There is technology that other countries are in possession of that they want that, that advance American interests. I anticipate that there will be and insistence that those companies set up American footprints. And we’ve seen that a little bit with chips under both of Biden and a Trump administration. So that’s something that would be popular. I think also, though, other countries, not only will will they have to think about whether it’s worth it for their trade with the us, but I’ll be interested to see whether this shift out of the US actually impacts the level of regulation within, particularly Europe, for its own sake. So, you know, we think of Europe as the big mega regulator. And to what extent can European countries in the EU continue to regulate to the extent that it is, in the face of, you know, the challenge they’re going to get from the Americans, but also the impact on their own competitiveness. And so it’ll be interesting to see whether there are bigger impacts of the Trump administration on other jurisdictions as they think about their own domestic interests and economic interest. I do think the age of digital services taxes may have to take a big pause during the Trump administration. They’ve been implemented in France, Italy, the uk and now Canada. And so Canada’s line is that, well, the US might not like that we’re doing this, but these other countries are doing this too, and so we can’t be left behind. My response to that would be, first, those other countries don’t have a trade agreement with the United States that says we’re not allowed to do that, whereas Canada does. But also the reprieve that EU country that European countries got, sorry, not the eu, France, Italy, so on, got for their own digital services taxes came under the Biden administration in this agreement, that the OECD process would continue to work on a multilateral digital services tax. That was not a position that the Trump administration had. And this, the digital services taxes originally were rolling out at the end of Trump 1.0 and the Americans were ready to retaliate. They had a 301 investigation against France, they had their list of luxury goods that they were going to retaliate on. And so all they have to do is dust and update the numbers which will just be bigger. And I think the Americans have a case there. I think there’s lots of evidence that, that digital services taxes target American companies specifically. The original form of this was called a gaff tax, which, you know, Google, Alphabet, Facebook, Amazon. And so there’s, I think there are reasons that they have a case, but in addition they’re just going to retaliate and so that’s going to make a lot of what we consume more expensive. There’s evidence that in the jurisdictions that digital services taxes exist that those firms are just passing it on to consumers, making life more unaffordable. All of that is fodder for opposition parties that have different plans.

Amar Breckenridge: Thank you.

One possibility is an emerging trade club

so we’ve talked a lot about, the usmca, the relationships between Mexico and Canada. Let’s move further afield. So it’s quite likely that the US will repeal permanent, normal trading relations with China. And that also invites a question as to whether the whole concept of MFN will be formally unwound. You can say de facto. It has been unwound to a large extent already. And beyond that, as a question as to the US as s continuing presence at the WTO as a member. At the same time, assignon, as you rightly pointed out, there are voices close to the administration that are very much interested in overseas market access. And that suggests they still perhaps scope

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to consider reciprocal negotiations. And they’re also voices close to the administration, as you can see in certain chapters, Project 2025 that are favourable to global trade, if only like minded countries. So one possibility is an emerging trade club. possibility for example, is that if the USMCA holds that that could serve as a basis, for expanding relations say with other friendly countries like Australia or the uk, perhaps in the long term, longer term Japan and maybe even the eu. Is that a viable scenario, this sort of emergence of an alternative global trade club? In any event, should we actually just come to accept that there will be some form of thorough shakeup of the governance of world trade in the next few years? I might start with you, Simon.

Simon Lester: So, yeah, I have heard this, view from some people who worked in the Trump administration, kind of the pro trade contingent within the Trump administration, saying we need some sort of trade club trade liberalisation within free market democracies. You know, I don’t know exactly how they define the boundaries but you know, we have a sense of, of what they mean. not China is a big part of it. so I’ve heard that argument. You know, I can see the case for it. But given the people, given Trump’s views and given the views of high ranking trade officials within the Trump administration last time, and probably this time Bob Lighthiz or some other people, I don’t think these kind of trade liberalising deals are going to happen even for allies like Australia and the, in the United Kingdom. I just, I don’t think that there’s support at the highest levels for trade liberalisation. so, so I understand why the pro trade people within the Trump administration, the past Trump administration, want to put this out as an alternative because they are still generally in favour of trade liberalisation. But I just, I don’t think that the people, the decision makers are going to go along with that. So that’s sort of a general point, more specific reasons, additional reasons why this is unlikely to happen. I think, you know, for Australia and the United Kingdom right now you have governments from the left. I don’t think that they’re going to have an easy time working out a deal with the Trump administration. Maybe a Conservative Party. If a Conservative Party were in charge in those two countries, Australia and the uk, you could get something. But I think it’ll be hard to work out a deal with Labour parties. Maybe there’s something. So last time in the Trump administration we saw a sort of mini deal, very small deal, with Japan. I’m not even sure what, what this counts as. It was sort of a few, Japan was going to lower tariffs on a few products. Yeah, I guess, I guess something like that is possible. It’s just, it’s of such limited consequence. I don’t think we could really think of that as reshaping the, the regime, the trade regime at all. but something like that could happen. In contrast, if you look at the eu, you know, I don’t see Trump administration and the EU signing any deal of signific. I mean they’ll, they’ll sit down, they’ll come up with ways to talk about trade issues to hash out conflict. but we’re not gonna have a big trade liberalising deal between the US and the EU now.

On the, maybe the broader question of the trade regime what will happen to WTO

On the, maybe the broader question of the trade regime and you know, is it, what’s going to happen to it? Obviously the WTO is the trade, the part of the trade regime that oversees or sort of governs the rest of it. So you know we should, we should look it’s important to what happens that the WTO is important and we should think about what the Trump administration might, might do with it there. Last time around while they did take some destructive actions related to dispute settlement in terms of blocking appointments of apellle partyy, they didn’t withdraw from the wto, they didn’t stop showing up. They did participate and actually used it as a forum to criticise China on some of its non market practises. If I had to speculate I would say you know, we’ll see something similar this time. they will continue to block or not participate in they much in WTO dispute settlement but they won’t, you know, won’t try to bring down the whole regime and take it away, take away this great public good from everybody. I’m not sure it would be worth the effort for them. There are some specific issues coming up where I think, you know, it’ll be interesting to see, you know, how exactly they handle it. So the Director General needs to be reappointed or a new one chosen. I, I think most people I think want to reappoint the WTO Director General. It is not clear what, it’s not clear what the Biden administration things of that but it’s also, it’s even less clear what the Trump administration thinks that what they’ll do there, if everybody else is on board with reappointing the current Director General, will the Trump administration go along with that or will they try to say no, no we need an alternative and you know create a bit of conflict that way. There is ah, an E Commerce agreement that’s out there and so going back to what we were talking about earlier with Digital Tech, this is one where the Biden administration was sort of pulling back from what many other countries were doing and wanted. the Trump administration might actually be a little more supportive of what some other

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people want in the context of this E Commerce agreement. But how supportive exactly will they be? Will they push this forward? Will, will they try to generate a consensus around an E Commerce agree? I’m a little sceptical that they will for no other reason than China is part of it and they won’t want to be part of an E Commerce agreement with China, but nevertheless something to watch. And then you have other issues like fishery subsidies, where the WTO has made some progress, where. So going back to the bigger point, you know, I’ll be interested to see how the Trump administration approaches all of this. I don’t really think there’s a good reason for them to completely undermine the wto. I think they are probably okay with it functioning the way it is, which is not very well. You know, as long as they are not getting dispute settlement decisions that find U.S. laws, regulations, administrative actions in violation of WTO rules and authorising retaliation, I’m not sure that they care that much. So I think my general conclusion here is the trade regime will limp along in its current form rather than being totally restructured, reformed. M. You know, we won’t see an alternative free market, democracy, trade liberalisation, club form. We’ll just see everything in the international sphere just kind of limp along as it is. And the action will be mostly unilateral actions the Trump administration takes and then retaliation. All of which happening is to a large extent happening outside of international trading system and international trade rules.

Meredith Lilly: I won’t comment on, the who pieces because I think Simon, summed it, up nicely. I will say a couple of things about the prospect of a possible USMCA that includes allies and democracies in this kind of new global coalition. I have heard this advanced. I’ve heard it from people in the first, Trump administration. And look more power to them. I would support it if it happened, and I think there could be a lot of good in that. But I’m also sceptical that it’s very realistic, largely because to convince others to participate in negotiations towards something like that. If it’s the eu, the uk, Australia, then the Trump administration upon inauguration in January, would actually need to be quite conciliatory and visionary in its outlook and that over at least the medium term. And so that would mean not tariffing them on day one and not engaging and really aggressive behaviour. It’s difficult to enter into the kind of negotiations required for a major trade agreement if that sort of activity is happening on the side. I mean, for Canada, we were very advanced into our negotiations with the United States towards USMCA. And then the 25% tariffs came, or 10% on aluminium and 25 on steel. I believe it’s been a while now, but I’m pretty sure those are the numbers. It made it very, very difficult for average Canadians to understand why we hadn’t just gotten up and left the table when these, when these tariffs came in. And so there was an entire kind of parallel CAL strategy that also had to be rolled out to explain to Canadians why this all made sense on some level. I guess the one caveat I would say is if, if those other countries, the uk, Australia and others, thought that that was a desirable direction to go and if they wanted to agitate for it loudly with the Trump administration as a means to avoid being hit with tariffs in the early days of the administration, you know that’s a possible strategy for them. I would say that it would require some difficult decisions on China for both Australia and the UK and other countries that are much more exposed to China than either the U.S. or either Canada or Mexico for that matter. We enjoy having fairly low exposure to China, despite all of the concern about Chinese FDI in Mexico. Overall amount of trade back and forth between our countries and China is much lower than these other countries. And so choices would need to be made. And I’m not sure those countries either want to take sides or are prepared to make the kind of choices that would be expected.

Amar Breckenridge: Thank you Meredith for those compelling insights. And I agree that there are difficult choices ahead for the uk, for Australia, Canada, Mexico and others who need to adjust to the new normal under President Trump.

Simon and Meredith provide valuable insights on trade policy issues ahead of time

Well, we reached the end of our time together, so I’d like to thank both Simon and Meredith for their valuable insights and commentary on a trade policy issues that we will all face in the coming years. And I hope you’ve enjoyed joining us for this podcast which you can access on any of your favourite platforms. I just a reminder to like, comment and share a podcast that always helps. And to all our listeners, we hope you join us again for our next podcast on this channel. Thank you.

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