The ANZSIL International Economic Law Interest Group (IELIG) was established in 2011 to provide a forum for those interested in international economic law, especially international regulation of trade, investment, intellectual property, and monetary law. The work of the Interest Group covers all areas of international economic law and its implementation in domestic law, embracing both theoretical and practical aspects. The IELIG aims to maintain relevance for government, practitioners and academics alike and encourages discussion and exchange of ideas among all those involved in this field.

2026 Workshop (online)

The 2026 ANZSIL IELIG Workshop will be held via Zoom on Friday 27 November 2026. Its aim is to provide an informal setting for discussion of topical issues and works in progress.

We are honoured to have Professor Jarrod Hepburn, University of Melbourne, as this year’s keynote speaker. He will speak on ‘The Flexible Sources of Investment Law’. Jarrod received the ANZSIL Article Prize this year for ‘The Legal Justification for the Doctrine of Legitimate Expectations in International Investment Law’ (2025) 36 European Journal of International Law 43. As part of the workshop, we celebrate this achievement with panel on Jarrod’s work.

We invite paper proposals from ANZSIL members, practitioners in the field as well as staff from MFAT, DFAT, and the Attorney-General’s Department. We encourage PhD students, early career practitioners and academics to submit a proposal. Paper proposals may be on any topic within the work of the IELIG.

All speakers are invited to submit their paper following the workshop to the Australian Year Book of International Law or the New Zealand Yearbook of International Law for possible publication. We also invite ANZSIL members and MFAT/DFAT/AGD staff to attend the workshop even if not presenting a paper.

Submission of proposals

If you wish to submit a paper proposal, please submit an abstract of 300 words by email to christian.riffel@canterbury.ac.nz by 9 November 2026. Please include the heading on your email message ‘ANZSIL IELIG Workshop Proposal: [Your Name]’.

Prof Chris Riffel, University of Canterbury | Te Whare Wānanga o Waitaha

Dr Jose-Miguel Bello Villarino, University of Sydney ANZSIL IELIG Co-Chairs

A monthslong crackdown within the Trump administration to soften its trade rules all started with a flap over pasta.

In the aftermath, Commerce Secretary Howard Lutnick and other top Commerce Department officials are leaning on agency staff not to drive up tariffs on grocery items and other goods ahead of the midterm elections.

...

Agency leaders first stepped in late last year, after a Commerce Department investigation determined in September that leading Italian pasta makers had been underpricing the products they sold in the U.S., in violation of trade rules. The proposed punishment — sky-high tariffs on the pantry staple — drew headlines at a time when the administration was trying to convince Americans its trade agenda was not driving up prices.

...

In particular, he and other top Commerce officials have discouraged staff from pursuing the most aggressive possible tariffs in the pasta case and other similar investigations into trade violations, according to four people familiar with the matter, granted anonymity to share unreported details about the internal discussions.

In some cases, senior officials instructed staff to recalculate rates that were deemed too high, two of the people said. The result has been much lower duties on violators in recent months compared to the past.

...

Lutnick signaled to staff across meetings and private correspondence in the fall of 2025 that the administration would no longer prioritize the most aggressive forms of enforcement, according to the four people. In a meeting in March, senior Commerce officials told private-sector lawyers about the new approach, stressing that the administration would no longer back the most aggressive form of enforcement, two of the people said.

...

Since the fall, Commerce officials overseeing antidumping and countervailing investigations have selected the lowest tariff option under consideration in the overwhelming majority of cases, two of the people familiar said. One of the people said that career staff initially chose the highest rate 90 percent of the time, but senior leadership would “ask to redraw the numbers” if all the options seemed too high.

I'm not totally sure how this story made its way into the press, although I can imagine that domestic industry lawyers were getting annoyed at the Commerce Department and perhaps looked for ways to make their concerns public.

Thinking about the big picture here, one possible takeaway from recent U.S. trade policy developments is that the unrestrained use of tariffs other than AD/CVDs has brought a bit of restraint to AD/CVDs. But I'd want to hear from practitioners about this before reaching any firm conclusions on the connection.

The last time I remember mainstream media reporting on the inner workings of AD/CVD calculations was a 2003 Washington Post article, which was about Commerce pushing duties in the direction people would generally expect:

... Lawyers who defend foreign companies in dumping cases complain that [Joseph] Spetrini stands out for his tendency to use his discretion in ways that hurt their clients, the result often being higher "dumping margins" set by the department on imported goods, with concomitantly higher duties.

"Bending the rules in favor of petitioners – that's what he views as his job, frankly," said one trade lawyer, speaking of the U.S. parties in dumping cases.

...

... [Spetrini] has considerable latitude in interpreting the rules and deftly skews the outcome toward high margins, according to a number of former employees who relate similar accounts of how he operates. A term several used to describe Spetrini's approach is "margin shopping," or looking at different ways to calculate an importer's costs or prices and choosing the one that helps fatten the prospective margin to a desirably high level.

First up, Colombia explains how the TRIPS Agreement uses intellectual property rights to reward, and therefore encourage, innovation, focusing on the example of patents. A key point of the submission is that there are two separate elements (which it refers to as "prerogatives") – exclusivity and remuneration – of the patent reward system:

1. Colombia notes that the TRIPS Agreement establishes two main mechanisms to reward innovation through the protection of intellectual property rights (IPRs): i) exclusivity and ii) profit potential. Indeed, in the example of patents, Article 28 of the TRIPS Agreement states:

Article 28 – Rights Conferred

1. A patent shall confer on its owner the following exclusive rights:

(a) where the subject matter of a patent is a product, to prevent third parties not having the owner's consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product;

(b) where the subject matter of a patent is a process, to prevent third parties not having the owner's consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process.

2. Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts.

2. According to the aforementioned article, a patent holder has two distinct prerogatives. The first is a prerogative of exclusivity, which prevents third parties from performing certain acts with respect to the patented product or process without their consent. The second is a prerogative of remuneration, under which a given use generates an entitlement to compensation. In the ordinary patent bargain, the two are bundled. However, as discussed below, the multilateral IP framework already recognizes configurations in which a right to remuneration is preserved independently of any power to prohibit use. Because the two prerogatives differ in scope and serve different functions, they do have distinct effects on innovation, access, market competition, technological diffusion, industrial learning and development.

(footnote omitted)

Colombia then notes the downsides to the exclusivity element:

4. Regarding the possibility of excluding third parties from using a technology, this prerogative can generate tensions with technology users, limit cumulative innovation, hinder interoperability, restrict competition, or increase barriers to entry, both for companies in industrialized and developing countries. Among countries, this exclusivity often serves as an industry protection, as it creates a "moat" in a specific market, with potential significant effects on other countries and its technological upscaling and development strategies.

On the other hand, Colombia sees the remuneration element as more positive and talks about the possibility of applying it independently of exclusivity:

5. By contrast, the remuneration prerogative – the possibility of receiving remuneration for a technological contribution – is in many cases sufficient on its own as a legitimate and sufficient incentive for innovation, without the negative impacts. The differentiated effects of exercising or privileging one of these two prerogatives over the other are relevant to the design of an optimal IPR reward system. In this context, the question is not whether innovators should be rewarded, but whether the reward should necessarily depend on the possibility of exclusion.

With regard to alternative approaches to remuneration that do not involve exclusivity, Colombia notes the following:

10. Other existing incentive mechanisms can inform this discussion. These include statutory licencing, related rights, pools, innovation awards, innovation inducement prices, reward funds, conditional public funding, open knowledge models, etc., under which the remuneration prerogative is kept, but the exclusivity one is not.

11. Taken together, these experiences demonstrate that the promotion of innovation could be better anchored focusing on the monetary rewards, without the potential adverse effects of granting temporary monopolies of exclusion.

(footnote omitted)

Colombia later elaborates on the point about separating out the two elements:

12. The international community could achieve significant progress on several IP discussions by independently analysing the two described prerogatives. Discussions on technology transfer, IP rights in pandemics, IP rights for environmental objectives, the role of the objectives, principles, and flexibilities of the TRIPS Agreement, VMAT for tech transfer (Voluntary and Mutually agreed terms), industrial protection and competition, etc., have proven to be almost intractable in different international fora. Exploring different models with autonomous prerogatives – for example, using different periods of protection for the two prerogatives, or providing market reward incentives by augmenting the remuneration mechanisms when a commitment to limit the right to exclude is made – could provide venues for better collective solutions. Likewise, the developmental dimension related to technology access and technology learning and technology upgrading, could be better served by treating the two prerogatives independently, and create a better scenario for trust and rule making at the WTO, even in the context of the reform of the organization.

Going forward, Colombia suggests the following discussion:

13. Consequently, Colombia, invites an exploratory thematic discussion on alternative innovation reward mechanisms currently in use, in which exclusivity has been modulated without eliminating the remuneration reward, and its effects on different types of industries and different types of countries.

In the English version of the document, the word "prizes" does not appear, but when I look at the Spanish version I think I see (using Google Translate) "innovation inducement prizes" (or maybe "awards") rather than "innovation inducement prices" (as stated in the English document), and Colombia clearly has something along these lines in mind. Prizes are arguably a better way to encourage innovation than the current patent system, so I'm glad Colombia raised this.

Colombia's communication was discussed at a meeting of the TRIPS Council on July 22-23. So far, all we have is the brief summary of the meeting put out as a WTO news item, which explains the reaction to the communication as follows:

Members also discussed a submission by Colombia entitled "Autonomous examination of TRIPS prerogatives, and existing examples" (IP/C/W/742). The submission invited members to consider thematic discussions on alternative innovation reward mechanisms, with a proposal to assess the impact of IP exclusivity as separate from a right to remuneration, and to discuss their effects across industries and regions. Some members expressed interest in continued dialogue on this topic, while others questioned the premise of the submission and emphasized the adequacy of the existing IP framework.

It's not too difficult to imagine which Members fell on each side of the debate. More details should be available soon when the minutes of the meeting are released, and I'll come back to it then if anything interesting was said.

Neguse: So going back to you, Mr. Steil, socialism [is] owning the means of production, right?

Steil: That's a piece of it, yeah.

Neguse: Okay. What would you call the Trump administration acquiring a 10% equity stake in Intel, a 15% stake in rare earth producer MP Materials, and a 10% stake in Lithium Americas and Trilogy Metals?

Steil: It's an America first policy to make sure we can outcompete China.

Neguse: Do you believe that the government should own grocery stores?

Steil: No.

Neguse: That would be socialist to you?

Steil: I think that would be a type of overreach in the federal government, absolutely.

Neguse: Would that be socialist to you?

Steil: Yeah, that'd be a form of socialism.

Neguse: Okay. And if Donald Trump announces tomorrow that he's going to take a 20% equity stake in Kroger, would that be socialism to you?

Steil: I'd want to see the details.

Neguse: Oh, you want to see the details?

Steil: No, but understand the difference. ...

...

Neguse: ... You said if government owns grocery stores, that would be socialist. But if, of course, Donald Trump were to announce an equity stake in a grocery store, well, I'd have to really see the details ...

...

Steil: I think there's a meaningful and substantive role of the federal government as it relates to foreign policy and national defense. I think that's why we look at the National Defense Production Act. ...

... [Rare earth materials, oil] have national policy and national security interests at stake, which is why we have the Defense Production Act, which gives the federal government certain roles that are non-traditional in the capitalist system. ... And then the question is, where on that dial? And so the question then becomes: Some folks on your side of the aisle would like to have government-run grocery stores. I think that's nuts.

...

Neguse: ... I asked you a very simple question. You answered it. The government owning grocery stores would be socialist in your view. I then posed the question as to whether or not the President announcing that the United States government would take a 10% or 20% equity stake in one of the largest national retailers in our country, whether that would be socialist, you said, I'd have to know the details. ... So, you then answered and took us down the road of the justifications with respect to national security and foreign mining and all the rest, so we are back to square one. As you said, you said very clearly, there are people in my party who believe the government should own grocery stores, and I'm trying to get a better sense as to whether or not you agree. And I sense that if Donald Trump were to announce that he believes it's the right thing to do, that you would agree. You have an opportunity to tell me no, that if the President announced a 10 or 20% equity stake in a national grocer, that you would not support that, you believe that's socialist.

Steil: I think there would need to be a national security rationale for the action. I don't see any ... in your hypothetical, I don't see a national security purpose.

...

Neguse: Okay. So, a test for you as to whether or not the U.S. government acquiring a stake in any American company or any American industry, as to whether or not that is socialist, is whether or not there's any kind of national security implication. And essentially, the United States government can, so long as they can put together this cogent rationale, Donald Trump can take equity stakes in whatever companies he deems necessary – the U.S. government, I should say, taking equity stakes, he's initiating – as long as that national security prerogative is established ... .

Steil: No, I think you're wildly overstating.

In reaction, let me first note that I mentioned similar issues last year, when Commerce Secretary Howard Lutnick didn't seem to deny that what the Trump administration was doing could be characterized as state capitalism, suggesting that it was justified as a response to China. In the Neguse-Steil exchange, the characterization has shifted from state capitalism to socialism, which I think is a fair way to describe some of the things that have been happening recently.

It seems to me that Steil's position as set out above is that, contrary to the title of the House Resolution, socialism should not, in fact, be condemned or denounced in all its forms, but rather should be embraced in particular circumstances. I understand that he only wants government ownership of the means of production when "national security" is at stake, but the concept of national security is very broad in theory, and in practice recently has been much broader than I ever imagined, with few if any guardrails. As a result, a limitation on government ownership of industry to circumstances involving national security does not provide much of a restriction on what I always thought was one of the main concerns people had with socialism, and instead appears to be a somewhat open-ended endorsement of such ownership.

Bringing this topic closer to the main focus of this blog, what does the current Trump administration/Republican party position on these issues mean for U.S. international economic policy? If Republicans are going to support U.S. government ownership of the means of production for national security reasons, that could, in theory, lead to some significant changes in international economic governance and relations. Perhaps the rules need to be refined and clarified so that all actors in the trading system are aware of the specific circumstances when government ownership of the means of production is permitted, so governments can have more certainty in knowing when and how they can do it?

That, of course, was a rhetorical question, and I'm pretty sure I know the answer: The Republican politicians who support U.S. government ownership of the means of production for security reasons would not apply these principles to foreign governments, and do not think international rules need to be adjusted to provide more guidance or leeway. Rather, the Trump administration and these Republican politicians are still likely to object to foreign government policies and practices of this sort when they have an impact on U.S. companies. And if foreign governments invoked national security in the same way the Trump administration has been doing, I don't think that would make a difference for the Trump administration's response. To make that point more concrete, if you think about possible foreign government interventions of this sort in the tech sector, I can imagine the Trump administration's response would be highly aggressive.

Having said all that, I'd still like to see some questions from trading partners on these issues, to clarify the scope of what the Trump administration thinks governments – both the U.S. and others – may do here. What exactly are its views on government ownership of industry based on a national security rationale? Given how common the practice has become, this seems worth fleshing out. Ideally, these conversations would happen at the WTO, so there would be a published account of the discussion, but even bilateral conversations could be useful.

And while we are on the subject of questions for the Trump administration, Congress could ask some about the nature and purpose of the equity stakes the administration has been taking, as well as how these actions would be considered under our international obligations. That might be more useful than voting on non-binding resolutions such as the one that triggered this discussion.

Finally, a big issue here is whether, or to what extent, this view on the part of some Republican politicians will outlast Trump's presidency. In 2029, will they return to the more free market views they held for several decades before Trump? I have been skeptical that there is a coherent big government version of economic policy that works in terms of politics on the right, in the absence of someone with Trump's personality dominating the scene. We'll find out in a couple years whether I'm correct about this.

In August 2023, China suspended imports of all Japanese aquatic products following the release of ALPS-treated water from the Fukushima Daiichi Nuclear Power Plant. The measure was widely discussed in Japan as an example of economic coercion. I previously examined its consistency with the WTO SPS Agreement in an EJIL: Talk! post.

More than three years have now passed, but Japanese seafood exports to China remain negligible. We can now look beyond the immediate impact of the measure and ask a different question: did this economic coercion work?

This post looks at how Japanese seafood exports changed after the restrictions, with particular attention to whether exports that could no longer go to China were redirected to other markets. 

What happened to Japanese seafood exports?

For this analysis, I identified 213 seafood product categories using Japan’s nine-digit statistical classification, based on the seafood categories in Japan’s trade statistics. I then traced their monthly export values from January 2022 through July 2026. The accompanying spreadsheet file contains the underlying product-level data.

Of these 213 products, 106 had been exported to China before the restrictions. Their average monthly export value to China fell by 99.9 per cent after the measure was introduced. In practical terms, direct exports to China almost disappeared.

At the same time, the average monthly export value of these products to all other markets — the rest of the world (ROW) — increased by about 30 per cent. At first sight, this looks like trade diversion: exports that could no longer go to China may have been redirected to third-country markets.

But there is one important problem. The other 107 products had not been exported to China before the restrictions, yet their average monthly export value to the ROW also increased by about 26 per cent. It is therefore possible that Japanese seafood exports were simply increasing more generally during this period. 

Was it trade diversion?

The next question is whether the increase in ROW exports really reflected trade diversion following the loss of the Chinese market. I focused on how dependent each product had been on China before the restrictions.

The idea was simple. If trade diversion occurred, products that had relied more heavily on China should show larger increases in exports to other markets after the restrictions. I therefore tested whether this pattern could be seen in the trade data.

The result supports this view. A 10 percentage point higher pre-restriction share of exports going to China was associated with an estimated 16.9 per cent higher monthly export value to the ROW after the restrictions. This makes it difficult to explain the increase in ROW exports only by general economic conditions or a broader increase in Japanese seafood exports. The result is consistent with trade diversion following the loss of the Chinese market. The accompanying Python replication code allows readers to reproduce this estimate. 

What does this tell us about economic coercion?

China’s restrictions almost eliminated direct exports of the affected products to the Chinese market. At the same time, however, products that had relied more heavily on China showed larger increases in exports to third-country markets. The restrictions therefore caused a major disruption in bilateral trade, but the trade data also point to reallocation toward alternative markets.

Previous research has shown that exporters targeted by economic coercion can reduce its economic impact by redirecting trade elsewhere. Ferguson, Waldron and Lim (2023), for example, identify reallocation to alternative markets as an important response to China’s trade restrictions against Australia. The Japanese seafood case shows a similar pattern.

What is Pix?

The Central Bank of Brazil explains Pix as follows (using Google Translate): "Within the Brazilian instant payment (IP) ecosystem, Banco Central do Brasil (BCB) created Pix, the Brazilian IP scheme that enables its users — people, companies and governmental entities — to send or receive payment transfers in a few seconds at any time, including non-business days." In "The Political Economy of Brazil’s Pix Payment System," Jeff Alvares, senior counsel at the Central Bank of Brazil, provides more background as follows:

Brazil’s payments landscape before Pix launched in 2020 exemplified market frictions. A few major banks dominated both infrastructure and customer-facing applications. Wire transfers cost $1.50-3.00 USD and took hours or days to clear. Credit card fees reached 2.2% on average, compared to 1.7% in the U.S., 1.5% in Canada, and 0.3% in the European Union. Around 45 million Brazilians, about 29% of the population, remained unbanked and excluded from digital commerce. Existing players had little motivation to incur the fixed costs of infrastructure that could cannibalize their card fees and transfer charges. Incumbent banks and card networks benefited from fragmented, costly rails.

The Central Bank conceived Pix to overcome this structural inertia. It now operates the Instant Payment System (SPI) infrastructure to provide real-time settlement around the clock. Use of this rail is mandatory for banks and major PSPs. Pix itself, the payment scheme running atop the SPI, is also Central Bank-controlled, with mandatory participation, and zero pricing for services to individuals and small businesses. (In common parlance, Pix refers to both the payment scheme and the vertically-integrated payment system including SPI).

The cornerstone of Pix’s integrated design is a combination of legal and economic barriers to potential competing payment schemes.

...

Pix’s fast, affordable, and near-universal model has achieved transformative results. It now reaches 177 million users (83% of population) and accounts for 51% of all payment methods, displacing payment cards and bank instruments alike (see chart). It processes seven billion monthly transactions worth $550 billion. For millions, it became the gateway to the digital economy.

...

Pix delivers transformative social benefits, but it does so through foreclosure rather than through competition among payment schemes. This tradeoff raises profound questions for antitrust policy and international trade law. ...

See also this follow-up piece by Alvares: "What Brazil’s Pix Reveals About WTO Rules for the Platform Economy."

USTR investigates Pix

USTR's July 2025 notice of initiation of a Section 301 investigation of Brazilian trade practices raises a general concern about "government-developed electronic payment services" without mentioning Pix by name:

Brazil also appears to engage in a number of unfair practices with respect to electronic payment services, including but not limited to advantaging its government-developed electronic payment services.

In the public comments it received, USTR heard from groups on both sides of the issue, setting out the opposing views. Below are some excerpts.

Pix critics

Critics of Pix included the US Chamber of Commerce and the Information Technology Industry Council (ITI).

The US Chamber argued the following:

PIX has been successful in expanding financial inclusion and digital access in Brazil since its launch by the Central Bank of Brazil (BCB) in November 2020. American firms partner with PIX, laud its success, and consider the continued success of PIX to be a priority. However, we maintain concerns around the fact that BCB both regulates and competes with payment arrangements (PAs). While it is not uncommon for central banks to operate one or more payment systems and supervise the private sector, the BCB has failed to establish governance procedures that avoid conflicts of interest and crowding out the private sector.

The BCB is the sole systemic regulator of Brazil's financial sector, setting market entry conditions, operational standards, and pricing frameworks for all PAs. At the same time, it operates PIX, a Central Bank-run retail payment network, which is itself a PA and a direct competitor in the marketplace. As such, U.S. electronic payment system companies must compete against their own regulator. This contradicts international best practices and guidance from the OECD, World Bank, CPMI, BIS, and WTO, all of which call for a clear separation between oversight functions and commercial activities.

Further, PIX is not subject to regulation and supervision from a third-party regulator and overseer or price or budget controls in a way that would be materially equivalent to the kind of regulation and supervision that private players face. ...

...

Brazil should commit to implementing effective measures that address the regulatory conflict of interest and anticompetitive practices described above. PIX should comply with the same regulatory, cybersecurity, and operational standards imposed on private-sector platforms and be subject to independent third-party regulation and supervision. Brazil should also ensure a clear separation between PIX's operational and regulatory/supervisory functions within the BCB to safeguard regulatory neutrality, mitigate conflicts of interest, and align with international best practices.

And ITI said:

Dual Role and Governance Concerns: The BCB is the sole systemic regulator of Brazil’s financial sector, setting market entry conditions, operational standards, and pricing frameworks for all PAs. At the same time, it operates PIX, a Central Bank-run retail payment network, which is itself a PA and a direct competitor in the marketplace. In practice, U.S. EPS are subject to a serious unlevel playing field as they must compete against their own regulator. This contradicts international best practices and guidance from multilaterals, which call for a clear separation between oversight functions and commercial activities. Furthermore, PIX is not subject to regulation and supervision from a third-party regulator and overseer, or price or budget controls, in a way that would be materially equivalent to the kind of regulation and supervision that private players are subject to.

Anti-Competitive Distortions: Private players are required to create ecosystems where participation is voluntary, whereas PIX receives certain benefits. Examples of anti-competitive distortions include:

• Access to competitive information: The BCB has access to confidential and sensitive information from its private competitors (including pricing, product development, and commercialization plans), and also manages the development and operation of PIX. Without effective governance safeguards, this structure enables the BCB to shape both market dynamics and regulatory standards in ways that advantage its own platform.

• Mandated bank investments in PIX improvements, new features, and products – and guidance that banks should prioritize PIX – without equivalent obligations for private platforms.

• Regulation dictating priority placement of the PIX icon within bank apps, ensuring prominent exposure and enhanced user experience.

• Mandatory network integration with PIX that channels retailer and consumer behavior toward the government platform, constraining growth opportunities for U.S. companies in Brazil’s payments ecosystem.

• Not equal standards applicable to PIX as competitor: Private-sector payment providers are expected to deliver top level security at all times. This means being under constant oversight from the Central Bank and investing heavily to keep systems safe and resilient. PAs are also subject to technical standards, tax collection requirements, and supervisory costs that do not apply to PIX.

• Unequal treatment of card networks to initiate transactions on PIX: U.S. card networks are not authorized to use their credentials to initiate payments via PIX. As a measure of good faith, the BCB should promptly expand the concept of payment initiation in order to permit all card networks and digital wallets to initiate payments on PIX, and to do so in a manner that would not require ongoing access to or retention of customer and transaction-related data. Such a measure would complement—not replace—existing PIX offerings and support broader adoption.

Pix defenders

On the other side, groups defending Pix were Public Citizen/Data Privacy Brasil Research and – not surprisingly! – the Brazilian government.

Public Citizen and Data Privacy Brasil Research said:

Pix is the result of a collaboration between the Central Bank, which regulates and operates it, and other private sector stakeholders, which began in 2018 with the establishment of a working group on instant payments. The private sector has been particularly involved since the design phase of Pix, and currently, there are over 900 payment and financial institutions participating in the system. The creation and continuous development of Pix is supported by the Pix Forum, created in 2019, which is composed of various market players with the goal of dialoguing with and supporting the Central Bank in defining the operating rules for instant payment ecosystems. Thus, key regulations around Pix have been developed through open and consultative mechanisms involving private banks, payment system operators, fintech companies, etc. There are therefore numerous mechanisms for private sector operators to liaise with and suggest improvements to the regulatory ecosystem around Pix.

As with other Digital Public Infrastructure (DPI) systems, Pix attempts to “open up” the payments ecosystem, thereby enabling greater competition and innovation in the fintech sector. A number of smaller companies and startups are said to be developing new services and applications around the Pix ecosystem, creating an ecosystem of diversified product offerings. As noted by an International Monetary Fund (IMF) study, the use of Pix has enabled greater competition in the financial sector as it has “led to the growth of several payment services institutions, which have established banking subsidiaries, increasing competition for deposits with big banks. The open sharing of transaction information on Pix users has helped to strengthen competition in the sales of banking products and services, including for better and cheaper payment services, among various institutions.”

...

It is important to note that Pix is not a substitute for traditional digital payment mechanisms such as credit cards. Pix has not replaced credit services; instead, it has been widely used as a real-time payment tool. If anything, Pix has driven a move away from the use of cash, rather than traditional digital payment methods. Notably, despite the huge uptake in use of Pix, studies indicate that the use of credit card systems has also increased over the past 5 years. Data show that the credit card market expanded in Brazil (with an 11.6% increase in the number of transactions in credit in the first half of 2024 compared to 2023), reaching R$4.1 trillion in total transaction volume.

And the Brazilian government said:

In establishing itself as the entity responsible for defining Pix’s rules, the BCB—recognizing the need for neutrality—chose to develop Pix as a Digital Public Infrastructure. As such, it is not exclusionary by design. This open-access system is available to all eligible institutions/entities/persons as a means to encourage innovation and the development of new business models by market participants, thereby promoting financial inclusion. Foreign entities also have the opportunity to integrate it into their systems through regulated financial institutions. To this end, BCB also became the operator and manager of Pix’s technological infrastructure, consisting of the Instant Payment System (“SPI”)—the central settlement platform; and the Transactional Account Identifier Directory (“DICT”)—the centralized database of transactional accounts linked to Pix keys.

...

The development of Pix, therefore, is at the forefront of a global trend to which the United States’ own Federal Reserve is actively contributing. The fact that the instant payment infrastructure provided by the BCB makes available to the Brazilian public an additional service, alongside other electronic payment options offered by different providers, is remarkably analogous to the development of FedNow in the United States and of similar infrastructure in other jurisdictions.

Brazil’s policies and measures do not restrict the operations or undermine the competitiveness of U.S. companies engaged in electronic payment services. Brazil does not apply differential treatment to foreign payment providers, nor does it impose licensing or operational barriers specifically on U.S. providers.

There is no prohibition on digital platforms—such as WhatsApp, Facebook, or Instagram—offering their own digital payment services. However, like any other domestic or foreign digital payment service providers, they must obtain authorization from the BCB; comply with the LGPD; and adhere to relevant, non-discriminatory regulatory requirements.

...

To reiterate, there is no discrimination against U.S. digital payment service providers—whether in the form of additional or distinct requirements, or regulatory bias vis-à-vis domestic or third-country providers. All providers, regardless of origin, must meet the same criteria for the provision of digital payment services.

There are no specific restrictions, for example, preventing U.S. digital wallets from operating in Brazil, whether for consumer or merchant accounts. They are not required to use Pix and are free to process transactions through their own systems. They must, however, like all other digital wallets (domestic or foreign), integrate with BCB-authorized institutions and comply with Brazilian regulations. No additional or differential regulatory requirements are imposed on U.S. digital wallet providers compared to Brazilian or other foreign counterparts.

There is likewise no prohibition on private payment platforms such as the U.S.-based Zelle and Venmo operating in Brazil, provided they—like all other domestic or foreign private payment platforms—secure BCB authorization, establish a local commercial presence (or partnership), and comply with Brazilian regulations.

The evidence presented herein makes it abundantly clear that Pix does not discriminate against, and does not unfairly disadvantage, U.S. companies engaged in digital trade or electronic payment services. By incorporating millions of users in the market for digital payments—an achievement of financial inclusion that has been widely recognized internationally, including by U.S. private companies—Pix has leveraged the potential of the Brazilian market for all providers, including U.S.-based companies.

Questions from the U.S. government

Pix came up at the public hearing as the Section 301 Committee asked questions of the witnesses. Nicholas Voltaggio of the Department of the Treasury asked Neil Herrington of the US Chamber the following:

The first question is for Mr. Herrington. Your testimony summary and your written comments, as well as your testimony here today, address conflicts that arise from the Brazilian Central Bank's operation and regulation of the government run electronic payment system, or PIX.

Could you please expand on these concerns and how specifically they may affect U.S. firms?

Herrington replied:

Sure, I'll say – I appreciate the question. I'll say, first of all, I want to – I'll submit a written rebuttal response just to be very, very thorough.

But on the surface, I think, certainly, as I said in my testimony, we agree, and I think our members agree, that PIX has been beneficial for issues like financial inclusion and digital inclusion.

The real – the question becomes, what – when you work as both regulator and operator. And we believe that there's a lack of transparency and separation in the governance of – between the – being a regulator and being an operator in that sense.

And obviously, there are other Central Banks around the world that operate in that sphere, but they have, frankly, much more robust governance procedures. So again, it's the division between – we'd like to see the division between – ensure competitive playing field for private providers, ensuring that the peak system is divided between – that the responsibilities between operator and regulator are clearly defined and ensure transparency and fair competition.

Sarah Bonner of the U.S. Small Business Administration then asked Sean Murphy of ITI the following:

In your written comments, you state that private players in the digital payments landscape are required to create ecosystems where participation is voluntary.

Whereas, PIX receives benefits such as access to competitive information, mandated bank investments in PIX, and regulation dictating priority placement of the PIX icon.

Could you please elaborate on how, if at all, electronic payment service providers from the U.S. or elsewhere may be affected by these alleged benefits received by PIX?

Murphy replied: 

... Let me begin by saying that Information Technology Industry Council and our members have no issue with government managed payment systems when they compete fairly with private sector payment systems.

And as my colleague from the U.S. Chamber said a moment ago, in the case of Brazil, this is not the situation.

The Central Bank of Brazil both regulates the financial sector, including many of the measures you just referred to, which are in our long form comments, but also operates a state championed entity that is a competitor to the private sector companies.

... on digital devices where you would normally access and conduct financial transactions, PIX is given prominent places.

For example, if you were – an equivalent would be if you were to walk into a bricks and mortar store and a competing product that is supported by the government has prime placement in a store and you have to then go search to find other alternatives that are operated by commercial service providers, it is itself, a de facto discrimination, and an impediment to fair access. ...

Some post-hearing comments are here: US Chamber; ITI; Brazil.

The USTR Determination

USTR took all this in, and in its determination came out on the side of the critics, offering the following conclusions on the issue:

Brazil has unfairly disadvantaged U.S. companies engaged in competing electronic payment services, including by policies that favor its national champion Pix. The Brazilian central bank established the instant payment system Pix in November 2020. Pix connects financial and payment institutions (‘‘participating institutions’’) with individuals, firms, and government entities to provide instant or scheduled payments, cash withdrawals, payment invoices, and short-term borrowing, among other services. The Brazilian central bank’s dual role as regulator and owner/ operator of Pix creates a conflict of interest, in the absence of adequate procedural safeguards. The bank has acted as a regulator to disadvantage U.S. electronic payment services providers and preference Pix. For example, the central bank mandates the use of Pix by financial institutions with more than 500,000 accounts and requires that Pix be displayed on participating institutions’ main application screen with no less prominence than any other payment or transfer functionality. In addition, the central bank encourages use of Pix over other services by mandating that participating institutions (including institutions that it requires to participate in Pix) offer Pix for free to individuals and by capping the fee those institutions may charge businesses for Pix transactions.

The acts, policies, and practices of Brazil related to its preferential treatment of Pix are unfair and discriminatory. It is unfair to require competitors to provide advantages to Pix, such as availability, visibility, and fee caps, and Brazil discriminates against U.S. electronic payment services suppliers by providing those advantages only to Brazil’s national champion. The acts, policies, and practices of Brazil related to its preferential treatment of Pix are a burden or restriction on U.S. commerce by imposing costs on U.S. services providers and by forcing U.S. providers to promote their Brazilian competitor, without compensation.

Some other views

In a recent article, The Economist says not so fast on USTR's conclusions:

The Trump administration also complains that Brazil’s central bank both operates Pix and regulates it. The arrangement does raise legitimate questions about giving so much control over a payments system and the financial data it generates to a single institution. But those are concerns about concentration of power, not about discrimination against foreign firms. Governments build, own and regulate essential infrastructure routinely. There is nothing inherently discriminatory about applying the same model to payments, points out Monica de Bolle of the Peterson Institute for International Economics, a think-tank in Washington.

The second assumption—that Pix has harmed American payment companies—is also weak. It rests on a misunderstanding over why Pix was created, says Daniel Santos Kosinski, a professor of economics at the State University of Rio de Janeiro. Before Pix, existing services, including those offered by foreign firms, charged fees for electronic payments that poor Brazilians could not afford. Pix was built to change that. The central bank estimates that at least 70m people have entered the formal financial system since its launch.

Far from cannibalising other electronic payment methods, Pix has expanded the market. It has done so at the expense of cash and cheques, the use of which has plummeted. The number of cash withdrawals made every quarter has fallen by 46% since Pix was introduced ...

That does not mean incumbents face no pressure. Pix has changed the economics of payments. Bernardo Guimarães of Getulio Vargas Foundation, a university in Rio de Janeiro, says this may eventually squeeze the profits of Visa and Mastercard—but through lower fees, not fewer transactions. Businesses in Brazil typically pay around 2% of credit-card sales to a payment processor. A Pix payment costs next to nothing. The result is greater pressure on all payment processors, big and small, to justify the fees they charge.

The Trump administration’s deeper concern may be that Pix becomes a model for the rest of Latin America, eroding American card networks’ profits and their influence across the region. But that, too, is misguided. Pix was the product of Brazil’s particular circumstances: a powerful and trusted central bank that could require big banks to join the system, and a huge domestic market in which millions of people still relied on cash. It also took years to design and test. Few if any countries in Latin America have the same conditions.

The Pix trade dispute and sovereignty

It's clear that USTR has a good deal of discretion under Section 301 to find that foreign acts, policies, and practices are unfair trade practices on the basis of their impact on U.S. economic interests, and my sense is this discretion is broad enough to allow USTR to have reached its Pix determination. But should it have done so? How hard should the U.S. push in areas that U.S. trading partners will consider sensitive ones that implicate sovereignty?

In the pre-Trump trading system, some U.S. critics of that system – including those who later worked on trade policy under Donald Trump – worried about its infringements on sovereignty. However, when Trump was in charge, it sometimes seemed like these critics were looking to defend U.S. sovereignty but not particularly interested in foreign sovereignty. In the case of Pix, we are dealing with a policy/program of a central bank, which I would think involves a high degree of domestic political sensitivity. If sovereignty is a concern for people, payment systems set up by a central bank seem like an area where this principle should play a role in the decision-making about whether an unfair trade practice exists.

I can see the argument that the way Pix has been set up has some degree of negative economic impact on U.S. companies such as Visa and Mastercard. But if negative economic impact is the standard, a wide range of what most people would consider to be non-discriminatory laws, regulations, and policies could be the subject of trade disputes. The further we go beyond non-discrimination as the core principle underlying the trading system, the more we encroach on sovereignty and the more trade conflict we are likely to see.

Of course, if you believe that as the largest economic power, you can push others on their sensitive domestic policies while avoiding anyone pushing on yours, this is not necessarily a problem for you. But if, on the other hand, you are looking for principles that can sustain a durable trading system, this may not be the right approach.

During an interview with the CBC in the afternoon, host Rosemary Barton asked U.S. Trade Rep. Jamieson Greer the following question:

It's a better deal ... than yesterday, but it's not a better deal than when CUSMA itself was being respected by the United States, which is not the case now, Ambassador, as you know. And one of the things that Prime Minister [Carney] also raised was this issue of reliability. He points to the fact that other countries have made deals with your country. He said it looked like they were signed on pencil because they've changed overnight. So why would Canada sign a deal without even any guarantees that you would continue to respect the deal, given that you haven't respected CUSMA?

Greer started his reply by focusing on the Trump administration's recent bilateral deals:

So which deal is that that we haven't respected that we've signed over the past year? Like, I'm just not familiar with that. I mean, we have made a dozen deals ...

Barton jumped in to make it clear she had the USMCA in mind:

You've added tariffs. I'm talking about Canada. You've added tariffs, right, above and beyond the free trade agreement, and that sort of contradicts what a free trade agreement is, of course.

In response, Greer talked about the USMCA review, and then emphasized the agreement's security exception as the reason for any new tariffs that would otherwise violate the deal:

... USMCA includes specific exclusions for national security measures, and so steel, aluminum, autos – these are all national security measures for us that fall within the exclusions within USMCA. ...

This exchange jumped out at me (the whole interview is worth a watch), because earlier in the day I had been doing a webinar on the USMCA where I was asked a very similar question. Karthik Sankaran of the Quincy Institute asked me the following:

[Juan Carlos Baker Pineda] already mentioned you have all these different tariffs ... floating around. And you have this process where some things are exempt, but clearly other things are a violation of U.S. commitments under USMCA, and one of the lines in Mark Carney's kind of ... walkout mic drop, so to speak, was these agreements were signed with a pencil. What does that tell you about U.S. intentions? ...

My response was:

My sense of the Trump administration is it sees all of these statutes that Juan Carlos referred to – 301, 232, 338 – ... as taking priority over the USMCA and any other international trade obligations. So they will observe those agreements unless they decide not to and decide to impose tariffs under one of those statutes for whatever reason. And when they do decide to impose tariffs, they will often have a justification under the agreement. So they'll say, "Well, this is for national security. We're invoking the national security exception," which they've done many times now. ... So ... , in their view, or their stated view, [they] are technically complying with the agreement.

Or in the case of these Section 301 tariffs that are being imposed in response to concerns about forced labor, maybe they would say, "Well, here, these are justified under the public morals exception."

So, regardless of what their explanation is, and they will generally have one if pressed, they don't feel too constrained by these agreements. So, I think that's the written in pencil part right there.

So, maybe what we're seeing here is sort of the famous saying of "we're observing it in the breach." ...

Am I right about that? Given the scope of the Section 232 tariffs in Trump's second term, it certainly feels that way. So many products are being covered at this point that the connection to national security, which was weak to begin with, seems totally severed. And if that's the case, how reliable are any of these agreements? I feel like Greer's point at the outset may have been that, putting aside the older trade agreements, the Trump administration will comply with the tariff commitments in the new bilateral agreements it has signed during the second term. But how can trading partners rely on that? What is special about these agreements that distinguishes them from, say, the USMCA or the revised KORUS FTA, which were negotiated by Trump during his first term? What is stopping the Trump administration from imposing tariffs for security reasons in ways that conflict with the tariff commitments made in the recent bilateral agreements? These are questions that U.S. trading partners are probably wondering about, and I'm not sure what the answers are.

Americans pay far more for brand-name drugs than Europeans do. For years that was treated as a domestic health problem. The Trump administration has started treating it as a trade problem, and in June 2026 it opened a Section 301 investigation into Germany's drug pricing.

This post asks whether a German-style 301 investigation would work against France (another European country often cited as a problem by U.S. government officials and pharmaceutical companies). It proceeds in three parts. First, it explains the Section 301 investigation against Germany, specifically, what USTR is alleging and why. Second, it explains how France sets drug prices, since similar action against France would have to address the system in place there. Third, it looks at the debate inside France over how to respond to American pressure, which turns out to be less united than it first appears.

The German Section 301 case gets things rolling

Section 301 of the Trade Act of 1974 provides a set of procedures under which USTR can investigate a foreign country's trade practices. Among other things, actionable conduct under Section 301 includes acts, policies, and practices of a foreign country that are “unreasonable or discriminatory” and “burden or restrict U.S. commerce.” If USTR finds that such conduct exists, the U.S. government can take action, usually with tariffs.

The key evidence behind USTR’s investigation in the German pharmaceutical case is that U.S. consumers pay roughly 3.9 times what German consumers pay for brand-name drugs. USTR traces that gap to two specific German practices. The first is a rule that ties price confidentiality to a discount, meaning a manufacturer can keep its negotiated price secret only by accepting a discount. The second is a draft law that would add a mandatory rebate on patented medicines, which the industry expects to grow over time. USTR’s initiation notice suggests that these practices – one in effect now, and the other possibly coming into force soon – together push German prices below fair market value and leave Americans to fund the difference (through higher prices in America).

The investigation against Germany grew out of the May 2025 “Most-Favored-Nation” executive order, which set out to ensure that U.S. consumers should pay no more for a drug than the lowest price paid by any comparable developed country. The Trump administration is trying to achieve this goal by raising foreign prices through trade pressure (there have also been moves by the administration to lower U.S. prices, although it remains to be seen how successful they will be). The United Kingdom already agreed to pay more for new U.S. medicines in exchange for tariff relief. USTR urged Germany to follow suit, but after months of talks, Germany instead advanced legislation to further cut spending on innovative drugs, and the investigation followed.

Will France be next?     

Beyond Germany, France is another EU nation that has often been cited as a particular problem in relation to its drug pricing. In France, a single national insurer, the Sécurité sociale, covers nearly everyone. Because one buyer pays for almost every prescription (an arrangement that is used in many countries around the world), that buyer negotiates prices that apply to every purchase, and there is no free market price for prescription drugs.

Every individual drug proceeds through four steps before it has a price and enters the market:

• Authorization (AMM): The drug is approved for safety and effectiveness, usually through the European Medicines Agency. Price is not discussed at this stage.
• Grading (HAS): A public agency, the Haute Autorité de Santé, evaluates the drug through its Commission de la Transparence. It issues two ratings. The SMR decides whether the drug is useful enough to be reimbursed and sets the reimbursement rate; and the ASMR measures how much better the drug is than existing treatments, on a scale from I (major advance) to V (no improvement), and is the main driver of price.
• Price (CEPS): A government committee, the Comité économique des produits de santé, negotiates the actual price with the company. This is the step that matters most for what’s at issue with the current U.S. 301 investigation, for three reasons given below.
• Reimbursement rate (UNCAM): A separate body sets what percentage of the price the state pays back, and the health minister formally lists the drug.

The CEPS stage is worth focusing on, because it is where the price is negotiated between the state and the manufacturer, which is the same kind of government price-setting that the investigation against Germany targets. Three features of CEPS matter here:

• It is not independent. CEPS sits under the authority of the health, social security, and economy ministries. The state appoints its president and holds the majority of its seats.
• The company cannot simply walk away. If no agreement is reached, CEPS sets the price by its own decision. The relevant ministers can override that decision, jointly setting the price themselves within fifteen days, but the initial decision by CEPS does not require approval.
• The published price is not the real price. On top of the official price, the manufacturer pays confidential rebates (remises) back to the state, negotiated drug by drug. So the list price overstates what France actually pays.

The CEPS stage is likely to be the focus of a Section 301 investigation. The first two are clinical judgments, while the third is a budget decision. And the confidential rebates in step three are the same hidden discount USTR is attacking in Germany. This raises the question: does France show the same price gap that started the German case?

To check, we can turn to RAND Corporation's 2022 price comparison, which looks at U.S. prices compared to 33 OECD countries. Its figure for Germany, 3.87 times, lines up almost exactly with USTR's 3.9× claim, which makes it a reliable benchmark for measuring France in the same way. The RAND Corporation finds that U.S. prices for brand-name drugs are 445% of French prices and 387% of German prices. In other words, the U.S. pays about 4.45 times French prices versus 3.87 times German prices. RAND states plainly that France and Japan generally have the lowest prices for brand-name drugs among the 33 OECD countries in the analysis.

Source: RAND Corporation, International Prescription Drug Price Comparisons: Estimates Using 2022 Data (RRA788-3), Figure 3.2, p. 17.

The same pattern appears in the HHS/ASPE analysis of the same data: U.S. brand-name prices were 422% of the average across 33 OECD countries, whereas U.S. generic prices were actually lower, about 67% of other countries' prices. The price gap is therefore a brand-name phenomenon. On generics, which make up 90% of U.S. prescription volume, the U.S. pays less than its peers.

There are two caveats to keep in mind. All of these figures are gross, list-based prices. RAND could adjust the U.S. side down for rebates (bringing the brand-name figure from 422% to 308%), but it could not do this adjustment for countries where there are confidential rebates. RAND notes specifically that “German sickness funds receive statutory rebates not reflected in manufacturer sales.” France's remises work the same way. So the true gap that France has is actually smaller than 4.45 times by an unknown amount. However, the main claim holds: on brand-name drugs, the category USTR is targeting, France is a bigger outlier than Germany.

The French response

France is not united on the issue, with a strong internal divide emerging. In 2026, a rare coalition formed on a proposal to make the real, net prices of drugs public, instead of keeping the rebates secret. The left (La France insoumise, the Socialists, the Communists) and the National Rally, parties that agree on almost nothing, all supported it. In parliament, opposition came from the presidential majority, which voted against. The executive and the relevant ministries also warned that transparency would strip France of its main bargaining tool, prompting some criticism, such as from Médecins du Monde.

Other groups have entered the debate too:

• Industry (LEEM): The drugmakers' association, LEEM, wants the government to freeze price cuts and abolish the safeguard clause (a yearly cap on total drug spending: if national drug sales exceed the limit, manufacturers collectively pay back the overage). It warns that new tariffs on medicines would threaten patient access and drug supply. LEEM was also questioned directly by the Assemblée nationale on pricing mechanisms in March 2025.
• Critical press (Veltis/Le Figaro): The argument here is that if the U.S. forces lower prices at home, companies will raise prices in Europe to compensate, and France, with some of the lowest prices in Europe, is the most exposed. Veltis, a consultancy quoted by Le Figaro, put it bluntly: to protect their main market, companies “will have to raise the prices negotiated in Europe… or give up selling their new drugs there.”
• Reformist (Bizard): The economist Frédéric Bizard argues that France should treat the American pressure as a chance to rebuild a pricing model he considers broken, rather than a threat simply to resist. He also confirms the mechanism that connects the American policy to France directly: because the U.S. now targets the lowest price in Europe, and that price is often France's, companies such as Pfizer threaten not to launch new drugs in France at all.

Some tentative predictions

So, would a Section 301 investigation along the lines of the one underway against Germany work against France? Just looking at the numbers, if you apply USTR's analysis of the German policies to the French situation, the case is there. The price gap that justified the German investigation is not only present for France, it is larger. And the French system concentrates price-setting in a state committee, which provides evidence of a government practice of the type Section 301 is designed to address. At the same time, whether any such practices – in Germany, France, or elsewhere – are “unreasonable or discriminatory” and “burden or restrict U.S. commerce” is a question still open for debate (although the Trump administration's views on this are probably not in doubt at this point). 

A complicating factor here is the same one running through the whole story: France's low prices come partly through confidential rebates, the same secrecy USTR is attacking in Germany. That makes the gap real but hard to measure exactly. Whether the administration turns to France next may come down not to the strength of the case, but to the particular priorities of the Trump administration, along with various non-trade aspects of the U.S.-French relationship.

Despite intensive negotiations from August 19-21, 2026, Canada and the United States failed to reach an agreement that would have suspended the 50% tariffs the U.S. threatened a month ago on $20 billion worth of Canadian exports to the U.S. (The list includes hockey equipment, cement, alcoholic beverages, paper pulp, and many others.) Those tariffs, covering roughly 5% of total Canadian exports to the U.S., are significant in part because they are the first large group of USMCA-compliant goods that have been subject to prohibitively high (50%) U.S. tariffs, reflecting another flagrant U.S. violation of the USMCA. (New US Tariffs) (The previous U.S. tariffs on USMCA-compliant goods were on goods in specific sectors, pursuant to investigations under Section 232.)

It emerged Saturday morning, August 22, that several major new demands by the United States had contributed to Prime Minister Carney's decision to suspend the negotiations, even though it meant imposition by the U.S. of the 50% tariffs. According to Carney, "the U.S. introduced at the last hours efforts to restrict our ability to have other trade deals."  (Carney August 21 Speech) Canada in recent years has concluded various trade deals along with economic and security partnerships, including major free trade agreements with the EU, the UK, India, South Korea, and members of the Comprehensive and Progressive Agreement for Transpacific Partnership. A major element of Carney's economic policy since he took office in 2025 has been to seek to double Canada's non-U.S. trade from 20% to 40% of the total over the next decade, to be achieved in significant part by concluding new or expanded trading arrangements. (Trade Diversification) Given that Ambassador Greer, Commerce Secretary Lutnick, and other U.S. officials knew that trade diversification through an expanded network of trade agreements is a hallmark of Carney's economic policy, it is reasonable to ask whether this apparently last-minute demand was a deliberate (and successful) effort to scuttle the negotiations.

 Other ‘red lines” for Canada reportedly included a refusal to reduce tariffs on medium and heavy trucks, which was considered essential to preserve the Canadian automotive industry, and pressure to curtail the use of French in streaming services and French content requirements in Quebec and elsewhere. (Red lines) The U.S. reportedly also sought “exclusive access” to Canada’s critical minerals. (Critical mineral access) (Bloomberg reported that U.S. negotiators had been willing to eliminate a lumber tariff, a decades-long irritant in bilateral relations, but no details were provided.)

While I have no inside information, reliable public reports last week (before the alleged last-minute U.S. demands) suggested that Prime Minister Carney was willing to remove retaliatory tariffs on Canadian imports of U.S. automotive products, steel and aluminum; improve to at least a limited degree U.S. access to Canada's dairy market; and pressure the premiers of eight Canadian provinces to discontinue the boycott of American wine and distilled spirits in provincial liquor stores. (These were three of the major U.S. complaints that generated the July threat of tariffs.) (Settlement Proposals) Ultimately, what Carney was reluctant to accept, presumably for the longer-term, were lower but still prohibitively high tariffs on three mainstays of the Canadian industrial economy, steel and aluminum (50% to 25%) and autos (25% to 15% on the non-US content). According to some published reports the 25% steel tariff (but not the lower aluminum tariff) would only have applied to the first four million tons, with additional exports reverting to 50%. (Steel quota) Derivative steel and aluminum products were to be subject to varying rates.

It also seems evident Canada had concluded, based on their own and other countries' experience with the constantly varying levels of Trump's tariffs over the past 18 months, that any deal concluded at this time could never be regarded as final, as it might be changed in the future based on Trump's whims. As Carney suggested in his August 22 speech to the nation, U.S. trade agreements are “signed in pencil.” (Written in Pencil)

Implications

The failure to conclude the deal is a defeat for many stakeholders throughout North America, with the ongoing uncertainties continuing to retard both foreign and domestic investment and job creation now and for the foreseeable future. Some of the smaller Canadian producers of the goods subject to the new 50% tariffs, and their U.S. customers, may not survive. Canadian exporters and U.S. buyers of steel, aluminum and autos will continue to face higher prices. American wine producers will continue the emasculation of their largest export market. (US wine exports)

The tariffs on aluminum seem particularly unwise since the U.S. is not a leading producer due to prohibitively high electricity costs and local opposition to new based on adverse environmental impacts. (Oklahoma Smelter Opposition) Nor is it in the U.S. national interest to become more dependent on leading foreign producers Russia and China--where "national security" concerns are not bogus– for U.S. aluminum needs. (Aluminum shipments from the UAE may be welcome at 50% tariffs but have been disrupted by the Iran war.) Petroleum interests in Alberta, which for the first time in a decade saw the possibility of a revival of the XL pipeline project (an objective shared by Trump), are no doubt disappointed, as are refineries throughout the U.S.

The U.S. attempt to restrict Canada’s agreements with third countries, the latest escalation of the Trump/Greer trade war with Canada and potentially all other U.S. trading partners, is deeply troubling for reasons that go well beyond additional fracturing of what until January 2025 was the United States' premier political and military as well as economic relationship. Significantly, the United States is attacking trade agreements that are consistent with Article XXIV of the GATT, which has authorized limited discrimination under certain conditions in favor of FTA partners since 1947 (as with the USMCA among the U.S., Canada, and Mexico, which Trump championed). It is one affront to provide in USMCA Article 32.10 that Canada and Mexico may not conclude new trade agreements with non-market economies (e.g., China). These broader restrictions on third country trade agreements are a challenge to sovereignty that neither Canada nor most other U.S. trading partners are prepared to accept, even when many have already tentatively concluded one-sided trade "deals" with the United States.

This latest iteration of the trade “war” (Carney’s term) is far from over. Carney, with strong backing from l provincial leaders and many Canadian businesses, has promised “dollar for dollar” retaliation, which will almost certainly result in counterretaliation by the United States, as Ambassador Greer has promised. (U.S. Counterretaliation) Whether and when bilateral negotiations will resume is uncertain. One likely result of the impasse is that even more Canadian citizens will continue to boycott U.S. wine, distilled spirits and other products and avoid vacation travel to the United States.

Impact on Mexico

If anyone sees a silver lining to this cloud it could be Mexican President Sheinbaum. Had the deal with Canada gone forward, her cordial relationship with Trump compared to Carney's frostier one could have attracted broad criticism in Mexico, despite recent friction over Trump’s demand that the U.S. be permitted to send troops into Mexico to fight drug cartels. (US Troops to Mexico). Formal USMCA negotiations between the U.S. and Mexico that began months ago are scheduled to continue in September. (Next US-Mexico Talks)  At present, Mexico has little to show from them other than Trump and Greer's kind words.

 Moreover, Mexico is apparently still facing US demands for 50% U.S. content to qualify for (unspecified) reduced auto tariff access to the U.S. It also seems likely that the U.S. will be reluctant to offer Mexico a better deal than the 25%-25%-15% (steel, aluminum, autos) reduced tariffs offered to (and rejected by) Canada. Unlike Canada, Mexico is benefitting from greatly increased AI computer server exports to the U.S. which for the most part enter duty-free. (Mexico recently passed Taiwan to become the number one U.S. source.) (Mexican Server Exports) Unfortunately, with a Mexican value added estimated at only 5%-7%, the server boom helps the export numbers (with the increasing trade surplus a risk), but it will do little to stem unemployment in the automotive sector.

The new U.S. demand relating to Canada’s third-country trade agreements is also a wake-up call for Mexico, which currently has free trade agreements with the UK, the EU, the European Free Trade Association, Japan, the Transpacific Partnership members, the members of Latin America's Pacific Alliance, and dozens of other countries. (Mexico's free trade agreements) Those agreements are designed to be consistent with GATT Article XXIV or the 1979 GATT Enabling Clause (which permits FTAs among developing countries under more flexible rules than GATT article XXIV). (Enabling Clause) If Canada is being challenged because of its third-country trade agreements, Mexico has no assurance that it will not be next on the list.

David A. Gantz

Will Clayton Fellow for Trade and Int’l Economics,

Baker Institute for Public Policy

Peter offered some partial support for my view, in particular on my skepticism of the political importance of tariffs as revenue generators. Heather, whose original comments on this issue were the trigger for my post, pushed back a bit. In doing so, she elaborated on her points about the incremental value of tariff revenue in making the U.S. fiscal situation a bit more sane, as well as the constituencies that develop around specific tariffs.

Let me first note that, as their LinkedIn profiles make clear, both Heather and Peter have spent a good deal of time working in the executive branch, and I am quite sure their insider experience gives them insights that I don't have. As a result, I take seriously anything they say on these matters.

At the same time, I think that working on the inside can put you in a bubble to some degree, and sometimes the thoughts of a naive, idealistic outsider can be useful. I'm happy to play that role here!

Putting that theory into practice, as an outsider, it seems to me that there can sometimes be so much caution and care in political decision-making that we end up with something close to paralysis. If people agonize too much about how every interest group and faction will view a policy decision, they may end up with a bad decision or no decision at all. Sometimes it's better to trust your instincts and just go for it.

The practical risk here is that the agonizing could lead to an overly cautious approach to changing various Trump policies. There are a wide range of these policies that a future Democratic president would likely object to, including foreign policy interventions, insufficient protections for workers and minorities, immigration crackdowns, income taxes, spending choices, and, of course, tariffs. Our hypothetical Democratic president – it could be a Republican taking over, of course, but at this point let's just focus on how a Democrat would handle things because it is simpler in some ways – will have to look at each one, and make a decision on how quickly and thoroughly to reverse course. As part of this, a key question will be whether to shut things down immediately and develop a replacement later, or to keep things in place while a new policy is worked out.

I understand the desire for caution, but I can also imagine that if you don't do certain things right away, they may not get done at all. Four years can seem like a long time as you are entering office, but with everything you will have to deal with, it may feel like it goes by more quickly than you expected.

Getting back to the policy at issue here, in the case of the Trump tariffs a key point is the link between tariff revenue and budget deficits. It seems to me that a future president could make the case for revisiting both of the main components of that deficit (income tax and spending levels), and in that context explain that the tariffs haven't made much of a dent in the budget deficit (and in the meantime have led to problems in the domestic economy and in international relations).

Will there be certain constituencies that object to the removal of these tariffs? Sure, but as part of the broader policy review that would be taking place, I suspect that the people staffing this new administration can think of ways to keep these constituencies happy.

Anyway, let's have the midterms first, then come back to this issue next year!