As we usher in a new administration, there is much speculation about the direction our trade policies will take.  Campaign rhetoric leaned heavily toward abrupt change in dealing with our trading partners and talk of high import tariffs to protect American workers had been bandied about.  The simple fact is “less may be more”.   Last week trade officials reviewed import tariffs on Canadian Paper.  In November, the U.S. set high duty rates on super calendar paper from mills in Saint John, NB and Port Hawkesbury, NS at 17.87%, 18.85% and 20.18% respectively.  The initial intent was to protect American mills in the region. When legislators realized the Canadian mills employ over 1,000 workers in Maine, the tariffs came under review. The issue became protecting American employment rather than American production.  Making sense of tariffs In the case above, the unintended consequence of a high tariff on Canadian paper was the potential loss of American jobs. Levies placed on Irving Pulp and Paper and Catalyst Corp. were linked to a December investigation initiated by Verso and Madison Paper of Maine. Allegations of government subsidies against Port Hawkesbury Paper of Nova Scotia prompted tariffs to be placed on all three Canadian firms. Swift action by the Department of Commerce didn’t consider that Catalyst operates a mill in Rumford, Maine and Irving Paper owns over a million acres of woodland and two saw mills in the state. Together both Canadian firms employ about 1,800 American workers. Realizing the delicate situation, U.S. Senators Angus King and Susan Collins of Maine launched a full investigation of tariffs on all three firms.  The representatives now want to review each Canadian Mill separately. In statements to the Portland Press Herald and BDN Main, Sens. King and Collins said, “The decision by the Department of Commerce to begin an expedited review of Irving and Catalyst is good news for Maine workers whose jobs could be affected by this unfortunate situation.”  “Irving and Catalyst are entitled to a fair and fact-based investigation.” Is American industry up to the challenge? The subsequent investigation of Canadian Paper Mills is centered on how fairly the product is priced. Did the Canadian government subsidize production (an issue at the heart of the US-Canada softwood dispute)?  If we [US] profess to have an open border policy with Canada, then competitive pricing is a reality. So long as pricing is derived from the cost of production, materials and labor.  If a lower production or labor cost is the deciding factor, then a tariff is not the answer. An honest look at our cost of doing business is the answer. When China dumped Cold Rolled Steel on the American market our government answered with a 265.7% tariff on imports.  Is this protectionism or just good business?  American Steel Manufacturers need to compete in a free and open market environment.  Clearly the case of Chinese subsidized steel is not an open market. The WTO (World Trade Organization) defines dumping as the sale of export product at lower than the domestic price. WTO guidelines in the form of countervailing duties were applied by our Commerce Department to balance the price of steel.  Last fall bending to the restrictive tariffs, Chinese officials agreed to control steel exports avoiding a tariff war. During the Obama years, the US made 25 challenges under the WTO, 16 against China alone, and won all of them. Protective tariffs however can have unintended consequences. We have considered slapping high import taxes on products from Mexico.  In our haste to protect American auto makers would we inadvertently hurt those same companies?  The vast majority of Mexican auto imports are in parts not finished vehicles.  A tariff on Auto Parts would drive up the cost of finished cars.  In truth, every car manufactured in the United States contains about 25% of parts made abroad and Mexico is our largest supplier. In 2015 U.S. sale of Agricultural machinery and products to Mexico amounted to $18 billion.  If healthy international trade supports U.S. export growth, can we afford import regulations which simply protect higher priced American goods?  A periodical review of our trade agreements help to keep fair trade fair. Taking TPP off the table From the beginning, original signatories to the 2005 “Strategic Economic Partnership” (Brunei, Chile, New Zealand, and Singapore) grappled with trade imbalance, fair labor practice and the environment. In 2008 the addition of Australia, Canada, Japan, Malaysia, Mexico, Peru, United States and Vietnam brought the total number of potential participants to twelve nations.  Supporters of the Trans Pacific Partnership saw the 2015 agreement as a means to strengthen America’s position as the dominant trading partner in Asia. Opponents on both sides of the aisle agree however that lowering trade barriers allows countries with cheaper labor to gain leverage against well developed nations especially in the sale of manufactured goods and agricultural products. Last year the United States exported $20.2 billion in agricultural products.  Since the TPP was never ratified by its supporting nations it was never really on the table to begin with. America’s withdrawal hasn’t changed our trade policy with other supporting nations. We have agreements in force with all but Japan and Vietnam. Vietnam represents over $5 billion in exports annually and there is no reason to believe that we would not continue to negotiate an agreement in the wake of our withdrawal from the TPP. Japan is our fourth largest trading partner receiving $114 billion in goods and services according to the Office of the U.S Trade Representative.  The US State Department is in the process of ratifying a bi-lateral agreement with Japan on a range of issues including Motor Vehicles which mirrors the agreement sought under the TPP.  The World Trade Organization (WTO) already has a protocol in place for negotiating trade with or without a sweeping agreement such as the TPP.  The development of strong bi-lateral agreements is preferable to high trade tariffs which usually bring unwanted retaliation.  Reshaping NAFTA – “Never let a good crisis go to waste” Over the years the U.S. has attempted to reduce tariff restrictions and open up trade through participation in or consideration of Free Trade Agreements.  NAFTA has enjoyed a 25-year run opening the borders between the U.S., Mexico and Canada.  But does the agreement endanger jobs here in the States?  There are firms on both sides of the fence on this issue.  Employees of Whirlpool believe that NAFTA has allowed jobs to move south in search of cheap labor.  American Gentor Corp of Oklahoma just hired 300 workers to increase production of electrical equipment exported to Mexico. Maybe it’s time to re-think this agreement.  The administration has expressed interest in scrapping NAFTA altogether and negotiating separately with Mexico and Canada. Chrystia Freeland, Canada’s Foreign Minister however weighed in on the issue stating “We very much recognize that NAFTA is a three-nation agreement and were there to be any negotiations; those would be three-way negotiations.” Mexico’s former ambassador to the U.S., Arturo Sarukhan also favors a unilateral agreement with the U.S. and Canada citing current talks on trade and immigration as a catalyst. “I have always believed one should never let a good crisis go to waste,” He said.  “There is an opportunity that we could end up modernizing and improving NAFTA.”  Expanding balanced trade Newly confirmed Secretary of Commerce Wilber Ross underpinned his position on trade by saying that he was “pro sensible trade”.  Going forward trade policy must balance the needs of the American worker and the American consumer.  Tariffs should protect companies against unfair business practices, but not against outmoded or uncompetitive manufacturing. With or without the TPP, America will continue to negotiate bi-lateral agreements with our Asian trading partners.   And while we continue to struggle with tariff issues north and south of the border, one thing is certain cross border trade is inevitable.  The only question remaining: is NAFTA the next agreement on the chopping block?