Wary of Trump's Approach, Governors Seek to Forge Own Trade Agreements

At the National Governors Association winter meeting in Washington this weekend, many governors said the president's tariffs are hurting business in their states.
by | February 24, 2019 AT 5:00 PM
White House economic adviser Larry Kudlow on Sunday sought to assure governors gathered in Washington for the National Governors Association winter meeting that the president supports international trade. (Alan Greenblatt)

Governors don't expect to become experts on foreign affairs, but focusing on international relations has become an increasingly prominent part of the job description.

As the Trump administration seeks to renegotiate trade deals with countries around the world, governors have been stepping up their own efforts to promote their states abroad, acting as salesmen and women for home-state companies and trying to bring in foreign investment.

Appearances by foreign leaders have become almost a standing feature of National Governors Association events. At the NGA's winter meeting in Washington this weekend, governors met with provincial counterparts and trade officials from Canada, Mexico and Japan.

"If their companies want to grow and expand and hire more citizens, governors have to help their companies sell around the world, as well as attracting new companies in their state," said Gary Locke, a former Washington governor who was Commerce secretary under President Barack Obama.

Locke now serves as honorary chair of Pass USMCA, a coalition lobbying for Congress to ratify the United States-Mexico-Canada Agreement, a treaty President Trump negotiated last year to update the 1993 North American Free Trade Agreement, or NAFTA.

White House economic adviser Larry Kudlow told the state leaders gathered in Washington that passage of USMCA will bring billions of dollars in new investment to America and update NAFTA for the digital age. "This is a huge priority for the United States and our administration," he said.

Kudlow sought to assure governors that, despite his "America first" reputation, Trump supports international trade. "The president's view on trade -- free, fair and reciprocal," he said as part of an NGA panel. "Many of his critics, some including my conservative friends, have argued that he's a protectionist. I don't believe that to be the case."

Kudlow, who directs the National Economic Council, said the administration's goal ultimately is "three zeros" -- zero tariffs, zero subsidies and zero non-tariff barriers. He described the president's policy of imposing import tariffs on friends and foes alike as a "negotiating tool" that has forced other countries to the negotiating table.

But both Republican and Democratic governors expressed concern about the pain their farmers and manufacturers are now experiencing, while also questioning the logic that putting up trade barriers is the way ultimately to eliminate them.

"Our trade with the Canadians is a huge part of our economy in Michigan," Democratic Gov. Gretchen Whitmer said. "That's why anytime we see policy being decided on social media, as opposed to a really thought out, forward-looking plan, it's troubling."

 

The Effects of Tariffs

Governors proselytize around the world for the goods and services produced in their states, while assuring foreign companies seeking new locations that their workers, infrastructure and supply chains can't be beat.

"Mexico is Arizona's No. 1 trading partner, and it's not even close -- it's times four," said GOP Gov. Doug Ducey, who has established a close relationship with Claudia Pavlovich, governor of the neighboring Mexican state of Sonora.

Ducey backs passage of USMCA and described himself as "happy to hear" a fresh expression of the president's support for trade.

"I love the aspirational goal of no tariffs, no subsidies and no barriers," he says. "That's the definition of fair and free trade, and I'm supportive of that."

But some other governors remain nervous about the administration's approach. Republican Gov. Gary Herbert of Utah suggested to Kudlow that it's "counterintuitive if you want to get to zero."

"South Dakota has been devastated by the trade wars that are going on," that state's GOP Gov. Kristi Noem said Friday at a conference sponsored by Politico.

Kudlow defended the idea of "three zeros" as a "useful goal," but conceded it might not be achieved during his lifetime.

"'America first' is a Trump phrase, a Trump watchword, absolutely," Kudlow said, "but he would argue that America first does not mean America alone."

 

Trade Treaty in Peril?

USMCA would bring Canada, Mexico and the U.S. closer to having tariff-free trade in agriculture. The new agreement would require that a greater share of parts used to make vehicles in North America must themselves be manufactured on the continent. It would also raise some labor standards throughout the trading area.

"It's vitally important that the members of Congress act on this as soon as possible," said George Allen, who served as governor of Virginia in the 1990s. "Whatever you think of NAFTA, this is an improvement."

But Marc Garneau, Canada's transport minister, pleaded with governors to talk with Trump about removing tariffs and other barriers. Canada will begin its ratification process next month.

He described USMCA as a "good deal," but recalled that the president said he would remove tariffs on Canadian steel and aluminum if Canada renegotiated its trade arrangements with the U.S. That hasn't happened.

"At this point, those tariffs are an unnecessary tax that is weighing down on both countries," Garneau said. "This will present us with real challenges as we begin the process of ratification. I don't know if we can get there."

 

Governors Doing It For Themselves

Trade missions have long been an important part of any governor's schedule. But governors have stepped up their efforts recently, at least partially in response to Trump administration policies. Negotiations between subnational levels of government are becoming more routine.

Governors can open a lot of doors for companies overseas. Major corporations have huge, sophisticated sales teams, noted Locke, the former Washington governor. But smaller companies can often use a boost.

"Governors are really just helping introduce these exporting companies -- small and medium businesses, farmers -- to additional opportunities," he said. "That cachet of a mayor or governor can go a long way to helping those medium sized companies."

Times may change and administrations may do more to promote trade, or hinder it. But regardless of what's happening in Washington, governors have to act as the primary advocates for their own states, said Penny Pritzker, another Commerce secretary in the Obama administration.

"At the end of the day, the federal government can't prefer one state over another in trying to attract foreign direct investment," Pritzker said. "The states are going to have to go out and market themselves and market their strengths."