Retired Gen. James Mattis, Mr. Trump's nominee for defense secretary, said last week that the U.S. should closely monitor Iran's compliance with the accord rather than get rid of it altogether. Rex Tillerson, Mr. Trump's choice for secretary of state, said he would recommend that Mr. Trump do a full review of the nuclear deal. He said he wanted to ensure that the U.S. is enforcing all of the mechanisms available to keep Iran's nuclear program in check.

The nuclear deal took effect in January 2016, after the world powers announced its completion in July 2015 and following staunch Republican opposition as well as concerns from Gulf Arab allies and Israel.

As part of the deal, the U.S. and Iran swapped prisoners and the U.S. paid Iran $1.7 billion to settle a decades-old dispute over a failed arms deal. Critics of the deal have said the payment, including $400 million in cash on the day four American prisoners were released, was a ransom payment. The Obama administration strongly denies that it was, and has said it wanted to settle other issues with Iran as the nuclear deal took effect.

Mr. Obama, departing Secretary of State John Kerry and other U.S. officials had voiced some optimism that the deal might usher in an era of cooperation with Iran, but Iran has continued destabilizing behavior across the Middle East since the deal's implementation. Iran and Russia are the main backers of Syrian President Bashar al-Assad, and Iran also backs the Houthis in a civil war in Yemen and the Lebanese militia Hezbollah.

Mr. Trump doesn't appear to have the same expectations for cooperation, though Mr. Tillerson said in his hearing that the U.S. should explore working with Iran in Syria.

-- Felicia Schwartz

Trade: Separating Bark From Bite

Mr. Trump led a revolutionary campaign against the trade principles the U.S. has espoused for decades. In coming months he will show how serious he was about deviating from Washington's free-trade orthodoxy and using the threat of tariffs to address what he calls the unfair trade practices of China, Mexico and other countries.

Mr. Trump and his key advisers have criticized the global trading system as unfair because the U.S. market is more open to freely traded goods and investment than some other economies.

"Free trade doesn't mean anything," Mr. Trump said in an interview with The Wall Street Journal Jan. 13. "It's not free if China sends its products here and we can't send our products there."

Mr. Trump has said that as soon as Day One of his administration he would pull the U.S. out of the unratified Trans-Pacific Partnership, the trade agreement that the Obama administration signed with 11 other nations around the Pacific, not including China. The U.S. should remind other countries that it can restrict $2.2 trillion in imports to right alleged wrongs coming from trading partners, he says.

But beyond that, Mr. Trump's exact blueprint isn't clear.

Since his election victory, Mr. Trump has played down earlier threats of imposing across-the-board tariffs of 35% or more on goods made in China, Mexico or other countries and shipped to the U.S.

His advisers have suggested those threats of big tariffs were meant to show trading partners and voters he's serious about opening wide-ranging negotiations to achieve better terms of trade. In recent weeks Mr. Trump has focused on persuading U.S. companies to hire domestically instead of abroad.

Some business leaders, former officials and defenders of free trade say the potential for international retaliation and penalties for any unilateral tariffs are so high that Mr. Trump will be constrained and avoid major tariffs that could kick off a trade war.

"The cost for the U.S. economy going protectionist -- namely restricting imports -- would be huge, would damage the U.S. economy first and foremost," said Pascal Lamy, former director general of the World Trade Organization, which can apply binding penalties to members who break its rules.

Still, Mr. Trump's choice of advisers shows he is serious about putting pressure on imports, and he has signaled to Mexico and Canada that he wants to renegotiate the North American Free Trade Agreement, or Nafta.

Robert Lighthizer, a trade lawyer who has argued for three decades for punitive tariffs on the overseas rivals of American companies, was chosen this month for U.S. trade representative.

Some congressional Republicans, who provided the biggest support for theObama administration's efforts at trade liberalization, are signaling they will resist Mr. Trump's efforts to impose big tariffs, which can hurt international businesses and raise prices for consumers.

GOP lawmakers say they will support efforts to negotiate and pass bilateral trade agreements, which the new administration says it prefers to multilateral affairs. The House GOP is also offering a special border-tax plan that could incentivize exports over imports, but Mr. Trump has reacted coolly.

Meanwhile, the Democratic lawmakers most skeptical of U.S. free-trade agreements say they're willing to work with the Trump administration -- or hold Mr. Trump to account if he moves away from his tough talk during the campaign.

-- William Mauldin

Defense: Focus on Islamic State, Other Challenges

Mr. Trump has vowed to accelerate the fight against Islamic State in Iraq and Syria, where U.S. troops since mid-2014 have backedan offensive by local forces to oust the extremist group from its self-declared caliphate. Mr. Trump has said the campaign against Islamic State is his No. 1 priority.

Already, a U.S.-led coalition has conducted more than 16,000 airstrikes on Islamic State targets and retaken well over half the group's territory in Iraq, as well as a swath of the land it captured in Syria. The focus of Mr. Trump's Pentagon will be to take the remainder of the group's territory by finishing off an offensive in Mosul and moving into its second stronghold in Raqqa.

Beyond Islamic State, Mr. Trump comes into office as the Pentagon is preparing its defenses to counter Iran, North Korea, Russia and China. The enemy gets a vote in which national security dilemma may rise to the top of Mr. Trump's priority list in his first year. George W. Bush saw his entire eight-year national security agenda co-opted by the Sept. 11, 2001, attacks.

Mr. Trump has already drawn a red line on North Korea. In a Jan. 2 tweet, he vowed to stop North Korea from developing a nuclear weapon capable of reaching parts of the U.S. The U.S. has nearly 30,000 troops stationed in South Korea who routinely train to go to war with Pyongyang.

The future of U.S. defense policy toward Europe may depend on whether Mr. Trump's nominee for secretary of defense, retired Marine Corps Gen. James Mattis, can persuade Mr. Trump of the North Atlantic Treaty Organization's value. Gen. Mattis has signaled his commitment to continue shoring up the defenses of European allies against a threat from Russia.

Mr. Trump has criticized NATO as being obsolete and beset by free-riding nations relying on the U.S. to pay for their defenses. Gen. Mattis, meanwhile, has called NATO "the most successful military alliance in modern world history, maybe ever."

So far, Mr. Trump's comments appear to presage warmer relations with Russia, which could affect policies in Europe and Syria, and colder relations with China. He has enraged Beijing by refusing to commit to the longstanding "One China" policy, by which the U.S. de-recognized Taiwan to establish formal diplomatic relations with China. His choice for secretary of state, Rex Tillerson, advocated a harder line against China's militarization and land reclamation in the South China Sea, a position that could raise military tension there.

Closer to home, Mr. Trump has trained his sights on defense contracting waste. He has railed against cost overruns and delays to the new F-35 fighter jet, inserting himself directly into negotiations with the chief executive of Lockheed Martin Corp., the lead contractor on the project. His crusade to drive down the prices of contracts could affect future projects, such as a roughly $1 trillion modernization of the U.S. nuclear arsenal just getting underway.

While Mr. Trump has focused on driving down the cost of defense contracts, he also has vowed to increase spending more broadly on the military, including increases to the number of uniformed personnel.

-- Paul Sonne

(END) Dow Jones Newswires

January 20, 2017 05:44 ET (10:44 GMT)

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