US Midterm Elections: Incoming Congress to Face Slate of Trade Policy Considerations

8 November 2018

The US held its midterm elections on Tuesday 6 November, with Democrats taking control of the House of Representatives and Republicans retaining their majority in the Senate, setting up a divided legislature that could have significant implications for Washington trade policy for the coming two years. 

While all 435 seats in the US House of Representatives were up for grabs this week, only 35 of the Senate’s 100 seats were up for a vote, two of which involved special elections. The vast bulk of the Senate incumbents facing a vote this year were Democrats, putting the party on defence in a bid to avoid losing seats to Republicans in that chamber. Several gubernatorial and state legislative races were also underway. 

The midterm elections were set to be the largest litmus test of the United States’ political mood since Donald Trump secured his unexpected win of the American presidency two years ago. While votes were still being tallied at press time, Democrats appeared to have secured a commanding lead in the House. In the Senate, that chamber’s makeup is still being determined, in light of some races being too close to call and one race heading to a runoff.

The country has grappled openly with division in the time since, amid heated debates over immigration policy; Washington’s approach to trade negotiations and trading relationships; the future of healthcare legislation; and growing fears that xenophobia, racism, sexism, and other forms of discriminatory rhetoric and actions are on the rise.

Meanwhile, political activism has increased dramatically, with new players entering the scene that could inject new energy and approaches into existing political parties, particularly as attention begins to shift to the next presidential elections in 2020.

USMCA: signature, ratification upcoming

One of the first trade-related tasks on the incoming Congress’ docket will be to review, weigh in, and approve or reject new or updated trade accords negotiated under the Trump Administration.

The US-Mexico-Canada Agreement (USMCA), for example, will be subject to review and possible ratification by the incoming Congress, which takes office in late January. The USMCA is designed to replace the North American Free Trade Agreement (NAFTA), the decades-old accord which has set the rules of the road for trade between the three countries.

The USMCA negotiations wrapped up on 30 September, following just over one year of negotiations, and the three parties plan to sign the final accord by 30 November, before Mexican President Enrique Peña Nieto leaves office. (See Bridges Weekly, 4 October 2018)

The USMCA will then need to undergo a series of steps in the US legislature to face a vote, the terms of which are set under the Trade Promotion Authority legislation, with the current version also known as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015.

Trade Promotion Authority (TPA) is the US legislation which sets out Washington’s negotiating objectives for trade accords; delegates trade negotiating powers to the executive branch for a time-bound period; sets out requirements for congressional and public notification and consultation; and sets out the procedures for trade agreements to face a straight up-or-down vote, no amendments, in Congress as long as they meet the relevant negotiating objectives.

How the changed makeup of the incoming Congress will affect the voting process remains to be seen, and may be clearer next year once committee assignments are finalised in both chambers. Approving trade agreements in Congress has long been a challenging proposition, at times taking years to achieve and in some cases requiring renegotiating aspects of a concluded trade accord with the relevant partner. 

Trade-related negotiations in the pipeline?

The Office of the US Trade Representative (USTR) has also notified the current Congress of its intent to negotiate trade agreements with the European Union, Japan, and the United Kingdom. The notifications were submitted in September, kick-starting the process under TPA before formal negotiations can be launched. Any new negotiations can only begin 90 days after this notice of intent is filed. (See Bridges Weekly, 25 October 2018)

The next step in launching these negotiations formally, at least on the US side, will involve submitting to Congress the negotiating objectives for these planned trade accords. This must occur at least 30 days before negotiations start and must be released publicly. TPA also envisions consultations between the executive branch and various House and Senate committees on the subject.

The proposed timeframe for concluding any one of these three proposed negotiating processes has not yet been made public by the Trump Administration, and will depend on a series of factors. The US will need to agree on the scope of a proposed accord with the country involved, negotiate the terms, and in the case of the United Kingdom, wait until after Brexit to begin formal negotiations, and ratify the deal only after the post-Brexit transition period ends.

The negotiation and approval of a new US Farm Bill is also likely to fall to the new Congress, given that the most recent version of the omnibus agricultural spending legislation lapsed in September, without being extended or replaced. Lawmakers in the House of Representatives approved a new Farm Bill in June, while the Senate approved their own version that same month. The Farm Bill process, along with being a hot-button topic domestically, is also being watched closely by US trading partners, given the country’s role as a major agricultural exporter and long history of state aid to its farm sector.

The renewal of the Farm Bill stalled partly due to marked differences between the proposed Senate and House versions, particularly regarding their contrasting approaches on altering and adding to existing work requirements for food stamp recipients. Food stamps, also known as the Supplemental Nutrition Assistance Programme (SNAP), are an essential welfare system that also serve as the cornerstone of the country’s “nutritional safety net.” (See Bridges Weekly, 28 June 2018)

Section 232, trade remedy investigations

Congressional lawmakers from both sides of the aisle have publicly expressed concern over mounting trade tensions between the US and various of its trade partners, such as China and the European Union. Moreover, many have argued that the increasing use of unilateral tariffs on national security grounds, namely via the “Section 232” investigative process, will provoke measures in response from these trading partners that could translate to increased costs for US producers and consumers alike, while reshaping global value chains in a way that ultimately disadvantages the United States.

Some lawmakers have called for curbing the US president’s powers to conduct Section 232 investigations and other probes and impose related trade measures, though legislation that would do so has not advanced far in Congress. It is also not clear whether any bill, even if cleared by both chambers of the US legislature, would have the necessary support to override a presidential veto.

Even so, a shared concern by Republican and Democratic lawmakers has also been the need for the US administration to consult more with Congress on these actions and their potential implications across various aspects of the American economy.

ICTSD reporting; “Senators introduce bill to change process to levy national security tariffs,” THE HILL, 1 August 2018; “U.S. lawmakers, at impasse on new Farm Bill, mull extension of old one,” REUTERS, 2 October 2018.

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