Pushing On With Protectionism
As U.S. President Donald Trump's administration enters its second year, it will continue to contend with the limits of presidential power to shape foreign trade, security relationships and domestic legislation. Trump wasn't as tethered to the Republican Party's policy desires or as subject to its influence as were many of his competitors for the party nomination. Having emerged as a candidate from outside the party's established political network, he had fewer direct connections to it. This relative freedom has given the president more leeway to entertain (and in some cases, enact) ideologically motivated policy changes that his predecessors found politically untenable, including a more protectionist trade agenda and more stringent immigration restrictions. Nevertheless, Trump doesn't rule in a vacuum, and many of the factors that will make or break his ability to keep campaign promises are beyond his control. The presidency will go through yet another year trying to align its policy wishes with reality.
Throughout 2018, the Trump administration will try to implement specific aspects of its protectionist trade agenda. Washington, for instance, will proceed with its investigation of alleged Chinese intellectual property theft and forced technology transfers. The inquiry may lead the U.S. government to take retaliatory action against Beijing inside as well as outside the World Trade Organization trade regime. In addition, the White House may make a decision in the coming year about whether it will try to renegotiate the United States-Korea Free Trade Agreement (KORUS), from which Trump has threatened to pull the United States.
KORUS won't be the only trade agreement up for discussion, either. Early in 2018, the administration will decide whether to continue its talks with Mexico and Canada to revise the North American Free Trade Agreement (NAFTA) or to withdraw from the deal. The negotiations reached an impasse this year because Canadian and Mexican officials disapprove of U.S. proposals to raise national content requirements, tighten rules of origin and eliminate investor-state dispute-settlement mechanisms. Though the three sides could still overcome their differences, the odds that they will reach an agreement early in 2018 are looking slim.
Trump will base his NAFTA decision on the advice of his Cabinet and on his own analysis of the potential risks and benefits of pulling out of the deal. Appeals from concerned Republican legislators and private-sector lobbyists could soften the administration's negotiating stance. A withdrawal, after all, would probably cause widespread disruptions in an array of important sectors in the U.S. economy. The risk of an electoral backlash in the states that most depend on NAFTA — and the economic damage that withdrawing from the agreement would wreak — could sway Trump to stay in the talks.
But the president is mercurial enough, and his core political base opposes NAFTA staunchly enough, that he could still decide to unilaterally back the United States out of the deal. In that event, NAFTA's proponents would try to use Congress and the federal court system to halt the withdrawal. The U.S. Congress could try to prevent an attempt to pull out of the deal by pressing, for instance, for a joint resolution to mandate congressional approval of such a move. Legal challenges would also mount against an effort to withdraw from the trade area since leaving NAFTA would cause uncertainty for so many governments and businesses. The deal's demise could result in the loss of 200,000 jobs, mainly in Southern and Midwestern states — a grim prospect for the Republican Party, which will depend on support in those regions in the midterm congressional elections in late 2018.
The likelihood of a unilateral attempt to pull out of NAFTA will rise, however, the longer the United States, Canada and Mexico negotiate without arriving at a consensus on the deal's future. With the U.S. midterm elections and the Mexican presidential race looming on the horizon, Trump will be eager to wrap up negotiations before the votes. Otherwise, the president may wind up dealing with a new Congress or a different administration in Mexico, either of which could scuttle a revised free trade agreement.
Beyond NAFTA, the approaching midterms could interfere with other parts of the U.S. administration's agenda in 2018. As Congress wraps up major legislative projects such as tax reform and gears up for campaign season, the general unity that prevailed in the Republican Party throughout this year will come under strain. Some Republican lawmakers, especially those whose seats are less secure, will begin distancing themselves from the administration's more politically risky policy proposals, and legislative endeavors that require bipartisan support — such as Trump's infrastructure funding plan — will struggle to gain traction. Similarly, controversial proposals, such as a comprehensive attempt to revise immigration laws, could stall out in Congress.
As Washington pushes on toward protectionism, NAFTA's other members will adjust course. Mexico and Canada alike will try to court new trade partners as NAFTA's future hangs in the balance. Canada, for example, will explore a trade deal with the Common Market of the South (better known by its Spanish acronym, Mercosur) while working to advance talks with Asian countries including India, Japan, China and Singapore. (Regardless of what happens to NAFTA, however, the United States will remain Canada's main trade partner.)
Votes Against the Status Quo
In Mexico, the Trump administration's quest to renegotiate NAFTA will pave the way for a populist to contest the presidency in 2018. The country's endemic poverty, glaring wealth inequality and systemic corruption have for decades made it a fertile ground for populism. Though populist rhetoric fell out of fashion in recent years because it worried investors, the Mexican political landscape has slowly returned to form. Today, four major political parties are vying for control of the country. Voters have soured on President Enrique Pena Nieto's administration over the past two years after a slew of corruption scandals and the government's perceived complacency in the face of Trump's threats to alter NAFTA. As the ruling Institutional Revolutionary Party lost ground with the Mexican electorate, populist candidate Andres Manuel Lopez Obrador rose as a credible contender for the presidency.
Lopez Obrador, who has been consistently ahead in opinion polls, certainly appears to have a chance to win the July election. But if he were to take office, his administration — like those of his recent predecessors — would lack the power to effect radical policy changes. Lopez Obrador would depend on cooperation from Mexico's highly divided Congress to implement any policy agenda and would have to rely largely on presidential decrees to implement less popular initiatives, such as a review of existing energy contracts. Should he make good on the review, moreover, he would probably alarm investors and jeopardize individual agreements with foreign energy companies, even though his administration couldn't roll back all of Mexico's energy reforms. And regardless of which candidate clinches the presidency, cooperation with the United States on counternarcotics will be as important as ever.
Colombia, meanwhile, is undergoing a similar political shift as a presidential vote hangs on the horizon in 2018. Widespread dissatisfaction over prolonged economic stagnation, revelations of corruption and the government's controversial peace negotiations with militants have weakened the ruling Social Party of National Unity. Several other political groups have broken their alliances with the ruling party to run their own presidential candidates, paving the way for a tight race. The first round of elections, scheduled for May, promises to be highly competitive; the vote will likely be split among four or five major contenders.
Whichever party prevails in the election, the next Colombian president probably won't derail the previous administration's peace deal with the Revolutionary Armed Forces of Colombia, or FARC. The legislature has already laid the groundwork for the agreement's final approval, which would come under threat in 2018 only if the right-leaning Democratic Center party follows through on a referendum to rescind the legislation underpinning the deal. A new government could, on the other hand, determine whether the government in Bogota continues peace talks with another militant group, the National Liberation Army, or enters a new negotiation to demobilize certain criminal groups.
In Brazil, too, a presidential election next year will showcase the country's discontent with established political elites. Years of recession and sluggish economic growth, which has only recently picked up, and a spate of corruption scandals have crippled some of the strongest political parties, including the Workers' Party, the Brazilian Democratic Movement Party and the Brazilian Social Democracy Party. Their loss has been a boon for outsider politicians such as Jair Bolsonaro, a right-wing lawmaker. Yet the next Brazilian administration is bound to be a weak one whose ability to govern will depend on how well it can appease the various political parties in Congress. The next year may also test the country's political stability. In 2018, a federal court will issue a final ruling on former President Luiz Inacio Lula da Silva's conviction this year on corruption charges. Da Silva is a leading contender for the presidency, and his supporters could take to the streets if the court upholds his conviction and bars him from running for a third term in office in October.
South America's Economies Come Together
Until then, Brazil's outgoing administration will try to pass measures to reform the pension system and to privatize state assets before its time in office runs out. Argentina, likewise, will push to enact tax reform as well as new labor laws intended to favor investors. Buenos Aires' reforms are far from certain, though, since Argentina's historically populist Peronist parties hold a large enough majority in the Senate to stall them.
Despite the odds against its reforms, Argentina, along with Brazil and the rest of Mercosur's members, will try to maintain its momentum in trade negotiations with partners outside the bloc as they enter 2018. The traditionally protectionist Mercosur has a narrow window of opportunity to expand its trade horizons before the pro-business administrations in Brazil and Argentina leave office in 2018 and 2019. To that end, the bloc's members will set out to negotiate as many trade agreements as possible over the next year, including deals with the European Union, Mexico, Canada and the European Free Trade Association. The talks won't always yield finished agreements, but the further policymakers get in the negotiations, the more likely that incoming administrations in Mercosur countries will be to move forward with them.
Venezuela Feels the Squeeze From Washington
Elsewhere in the region, a former Mercosur member — Venezuela — will continue its rapid decline. The country's economic decay will accelerate over the next year as the government defaults on foreign debt payments, high inflation spirals into hyperinflation and shortages of food and medical supplies worsen. At the same time, oil production, a crucial source of revenue to sustain Venezuela's diminishing food imports, will steadily fall. The economic crisis will persist for years.
Though the Trump administration will have bigger priorities on its agenda in 2018, such as NAFTA negotiations, the United States nonetheless will intervene to try to shift Venezuela away from one-party rule. Washington and its allies in Latin America will pressure the Venezuelan government to hold competitive elections and to recognize the opposition-controlled legislature. Caracas, in turn, will consider negotiating with the U.S. government and the domestic opposition.
But the Venezuelan administration will join the talks only to stave off more sanctions from Washington; it's not interested in holding elections it could lose in 2018, at least not without a U.S. assurance of amnesty for its leaders. The Venezuelan leadership's drive for self-preservation will make any attempt at reconciliation between the government and the opposition difficult. Furthermore, free elections in which the ruling United Socialist Party of Venezuela could lose power would go against the interests of one of Venezuela's major stakeholders, the Cuban government. And even if other countries, such as Mexico, try to reduce Cuba's energy dependence on Venezuela, the beneficiaries of the political and military patronage networks embedded in Venezuela's state institutions will try to block attempts to institute free elections for fear of jeopardizing their privileges.
As the year unfolds and Venezuela's economy unravels, the risk of political unrest, whether in the form of protests or an attempted coup by members of the security forces, will increase. Renewed dissent alone will not pose an existential threat to the Venezuelan government unless large numbers of police or military units turn against the state. To keep the military on its side, President Nicolas Maduro's administration will allow the armed forces greater control of state oil and gas company Petroleos de Venezuela. A new wave of demonstrations, moreover, would struggle to gain momentum because more and more Venezuelans are opting to leave the country in search of a better life rather than staying and protesting. If factions of the military staged a coup, however, they would jeopardize the current government and may even prevail with enough support.