NAFTA roller coaster

White House says it intends to renegotiate, not withdraw from trade deal after back and forth with Mexico and Canada

By: Eric Kulisch
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Photo: michal812 / Shutterstock.com
   The United States will work to renegotiate the North American Free Trade Agreement with Mexico and Canada rather than withdraw, the White House announced Wednesday night following reports the Trump administration was ready to terminate the 24-year-old pact.
   It’s the latest in a series of zig-zags by the administration over NAFTA, and trade in general, that has made it difficult for trading partners and companies to gauge what kind of policies the Trump administration intends to pursue.
   The statement appeared to be in response to a Politico report that said an executive order was being drafted that would declare U.S. intent to exit the trilateral trade deal, which Trump blasted on the campaign trail for undermining the U.S. manufacturing sector to the benefit of Mexico. The story immediately prompted phone calls from Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto seeking clarification.
   “President Trump agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries,” the White House statement said.
   “It is my privilege to bring NAFTA up to date through renegotiation,” Trump said in a statement. “It is an honor to deal with both President Peña Nieto and Prime Minister Trudeau, and I believe that the end result will make all three countries stronger and better.”
   Trump campaigned on a protectionist platform that won him support in so-called Rust Belt states where manufacturing has been in decline for decades, calling NAFTA the worst trade deal ever. He said would pull out of the agreement if Canada and Mexico didn’t agree on better terms for the United States. NAFTA eliminated tariffs on goods traded within the economic bloc, opened access to markets and led to integrated supply chains in many industries. Despite the dislocation of some U.S. workers, economists say the deal has benefitted the U.S. economy on balance, while greatly stabilizing Mexico’s economy.
   The Politico report contradicted administration signals in recent weeks that the goal was to upgrade the free trade agreement. Robert Lighthizer, Trump’s pick for U.S. Trade Representative, indicated as much during his confirmation hearing last month and the White House sent a draft letter to Congress with its initial outline of negotiating priorities for a revised deal.
   Under law, Congress must sign off on the negotiating principles, but that process has been delayed awaiting Lighthizer’s confirmation, which was held up by political wrangling and a legal concern for several weeks. On Wednesday, the Senate Finance Committee resolved the remaining issues and unanimously approved his nomination. The full Senate is expected to confirm Lighthizer next week.
   Under NAFTA rules, any nation that wishes to withdraw from the accord must provide six months’ notice to the other parties and Congress. The ability of a president to unilaterally withdraw from a congressional-executive agreement such as NAFTA has never been tested and if attempted would likely result in a court review.
   The back-and-forth about whether Trump would exit or renegotiate NAFTA is likely a function of the tug-of-war in the White House between nationalists such as Chief Strategist Steve Bannon and Peter Navarro, head of the National Trade Council, and centrists such as Gary Cohn, who heads the Council of Economic Advisors, and son-in-law Jared Kushner. Business leaders have also let the White House know that maintaining and improving NAFTA is important to their enterprises.
   Others see Trump’s hint that an exit from NAFTA is still an option as a negotiating ploy to try and get a better deal with Mexico and Canada.
   Business groups, along with the Mexican and Canadian governments, agree that NAFTA needs to be updated because the economies of the three nations have changed substantially over the last quarter century. Reports of a possible withdrawal drew immediate alarm bells from some quarters.
   “Without mincing words, initiating a process to withdraw from NAFTA is a terrible idea, and it will only mean a longer and more difficult struggle for farmers to recover in this economy,” Ron Moore, president of the American Soybean Association, said in a statement. “With surplus production and domestic prices lagging, we need more opportunities and easier avenues to sell our products abroad, and signaling the U.S. intent to withdraw from NAFTA runs absolutely counter to that goal.”
   Moore added that soybean farmers sent more than $2.5 billion in soybeans, meal and oil to Mexico last year, “making it our number two market overall and the leading purchaser of U.S. meal and oil. Canada is number three in meal sales and number 10 in oil. Add to that the sales of the meat, dairy and eggs that require soy meal as animal feed, our North American partners are unquestionably among the most vital and vibrant markets for American soybeans.”
   “If any actions to announce the intent to withdraw from NAFTA are underway, the administration should immediately abandon such plans and focus instead on ways to work with Canada and Mexico to modernize and optimize the agreement during a renegotiation,” he said. “ASA has been supportive of the administration’s efforts to improve NAFTA. That’s where the action should be; beginning withdrawal procedures before modernization negotiations even take place are counterproductive and send the wrong signal. Further, a U.S. Trade Representative is still waiting to be confirmed, and Agriculture Secretary Sonny Perdue just was sworn in yesterday. We need to give both time to have input on NAFTA modernization.”