Leibowitz: As USMCA talks heat up, Trump admin focuses on wrong issues

The days are tough for the Trump administration, both geopolitically and economically. The global situation has thankfully (for now) gotten less overtly violent, but signs of stalemate are in the air.

Both Israel and the US have found it relatively easy to weaken their enemies (Iran and Hezbollah). They’ve also found it very hard to vanquish them entirely. Longtime allies and competitors of the US that depend on exports of oil, natural gas, and fertilizer from Persian Gulf countries (Iran, Iraq, Kuwait, Bahrain, the UAE) are impatient. The closure of the Strait of Hormuz by Iran and the US looks set to remain for a while. That closure hits the US as well as many other countries with inflationary price increases.

On the economic front, the Trump administration has made several announcements recently, most of which are focused on tariffs. The new and generally increased tariffs on steel and aluminum derivative products, together with increasing calls in the US (e.g., automotive and agriculture) for tariff reductions to remove serious barriers to those industries’ supply chains.

The United States-Mexico-Canada Agreement (USMCA) up for review in July of this year sees calls from those few industries (primarily steel and aluminum producers) that make money from tariffs to close alleged “loopholes” in the USMCA agreement. These “loopholes” are efforts to recognize that US industries rely on imports of components and raw materials that cannot be substituted with US supplies overnight, if at all. US Trade Representative Jamieson Greer has spoken in threatening tones to Canada and Mexico in support of the few industries that have seen profits rise at the expense of their customers.

“Offsets” are one of the “loopholes” that steel and aluminum producers complain about. These offsets currently apply to automobile and truck manufacturing. But they could also apply to other strategic industries. Companies with US production can offset some or all their normal tariff burden under Section 232 by counting US production against Section 232 tariff liability. Large companies with substantial US production benefit the most. Domestic steel and aluminum producers decry the reduction of the “tariff wall” against imports. But their complaints ignore, as is usually the case, the burdens shouldered by US companies that have spent decades integrating their operations with foreign sources of parts and components that are not available from domestic sources.

In 2018, the Trump Section 232 tariffs on steel and aluminum wisely found that tariffs make no sense if US manufacturers can’t get inputs from domestic sources. The steel and aluminum exclusion programs featured about half a million exclusion claims. More than half were granted.

But in February 2025, the program was abruptly terminated. Steel and aluminum producers claimed, with insufficient evidence, that too many exclusion requests were approved. There has been no analysis of whether excessive approvals actually occurred. (Disclosure: I worked on steel and aluminum requests in support of their approval.). Some exclusion requests were granted when they should have been denied. And some were denied when they should have been granted. But by and large, the Bureau of Industry and Security handled these requests well. The system was not poisoned to the point that it had to be cancelled. American industry as a whole is hurt by its termination.

Now, there is no administrative exclusion program. With such measures as offsets, a similar result is obtained, but only by presidential dispensation. Instead of a transparent process, we have a non-transparent one that does not rigorously examine facts and circumstances but acts on grounds shielded from public view. This opacity leaves out tens of thousands of US manufacturers that need foreign inputs because domestic supplies are not available. US manufacturing is suffering as a result, which is one reason (along with automation and productivity gains) manufacturing employment in the US continues to decline.

USMCA provides strong support for North American competitiveness. US manufacturing has lost considerable capabilities over the last few decades. “Cheating” by other countries is not the only reason. Nor is it even the most important reason. These losses, not only of jobs but also of capability in large swathes of American manufacturing, were due to failures here at home as well as other countries improving their competitiveness. Those improvements are not always violations of the rules of the road. If US producers are not faced with competition, including international competition, they will not become better—it will make them more rotund, to put it politely.

US competitiveness in automotive, energy, and agricultural sectors will only improve by adjusting to competition. There may be “bottleneck” industries (and steel may be one) that, for defense reasons, need to be supported to maintain or improve their competitiveness. But tariffs will not accomplish that goal. Only constant improvement will meet the goal. Because the rest of the world will surely test us, more in the future than in the past.

The North American market can be a beacon of competitiveness, but we can’t do it alone. In steel, aluminum, and other industries, USMCA can provide a North American market that is more efficient and resilient than the US on its own. The pandemic taught us, and the current war teaches us again, that global supply chains can be disrupted. The North American market, if its integration can be enhanced, can cure many of the supply chain problems we are currently encountering without protective tariffs between the three USMCA countries. Closing the US market even from Canada and Mexico will not serve our future well.

Canada, Mexico, and the United States all have their negotiating priorities. Tweaking tariffs and other barriers to trade will consume a lot of intellectual and diplomatic energy. But the overarching goal should be North American integration and, with it, enhanced competitiveness and efficiency.

That is why the offset program should not be curtailed but expanded to industries suffering similar problems to those of the automotive sector: agriculture (fertilizers), energy (transformers, copper wire, transmission towers, data centers), and many others. Reliance on tariffs is a dead end. Those taxes will not lead to a stronger America but instead to a more isolated and weaker one.