Is NAFTA In Trouble Again?
It’s happened again. President Donald Trump has once again threatened to withdraw the United States from the North American Free Trade Agreement, this time in an interview with the Wall Street Journal last week.
There’s been some speculation that Trump would revert to this position, after the last couple of rounds of NAFTA renegotiation talks produced little in the way of results, at least from the president’s perspective. The US negotiating positions on issues like local content and government procurement are designed to reduce the US trade deficit with its NAFTA partners.
The sixth round of negotiations is scheduled to begin on January 23 in Montreal.
Markets reacted negatively to administration pronouncements, with Canada’s and Mexico’s currencies and Mexico’s stock market dropping on news that Canada sees the chances the US will exit NAFTA increasing and Treasury Secretary Steven Mnuchin proclaiming that the president will dump the agreement if it can’t be revised according to his specifications.
Under the agreement, any party can leave after after giving six-months’ notice. The question arises as to what will happen if Trump decides to give such notice.
One scenario is that the US could stay in the deal even if the president issues a withdrawal notice. The administration has signaled it may yet stay in the Paris climate agreement even after the US gave notice it was leaving in three years. Congress could prevent Trump from leaving NAFTA under its constitutional power to “regulate commerce with foreign nations,” and pro-trade groups could challenge such a decision in court.
The Mexicans and Canadians have indicated they will maintain a free-trade arrangement with each other even if the US pulls out. As with the Trans-Pacific Partnership—which is persisting with eleven members minus the US—a downsized NAFTA could continue, waiting for the US to rejoin it in a post-Trump era.
If the US did withdraw, whether or not the agreement continued with it, tariffs would rise on Canadian and Mexican imports, which could cause price increases, lost jobs, and reduced corporate profits.
Trump’s grandstanding could also be designed to jumpstart a next phase of negotiations. Mexico has vowed to leave negotiations if that should occur and the president’s expectations of a new round of negotiations appears to be unrealistic.
Trump actually told the Wall Street Journal that a revamped NAFTA could be used to pay for a wall along the Mexican border. “They can pay for it indirectly through NAFTA,” Trump was quoted as saying. “We make a good deal on NAFTA, and, say, I’m going to take a small percentage of that money and it’s going toward the wall. Guess what? Mexico’s paying.”
Yeah, right. As if Mexico’s going to agree to anything like that.
The Shifting US-China Trade Landscape