With reported plans to pull out of the trade pact, the administration seeks to ratchet up pressure on Canada and Mexico.
- By Jessica HolzerJessica Holzer is an editor at Foreign Policy. She previously covered financial regulation for The Wall Street Journal.
President Donald Trump has revived his tough talk on the North American Free Trade Agreement in recent days and lashed out at Canadian trade policies, appearing to revert to his previous hard-line trade stance ahead of the 100-day mark of his presidency.
Trump criticized Canada for protecting its dairy farmers and called NAFTA “very, very bad for our country,” during a visit to a Wisconsin factory last week. Then on Monday, the administration slapped tariffs on Canadian softwood lumber.
On Wednesday, Politico reported that the administration is readying an executive order that would pull the United States out of NAFTA, a potentially sharp reversal from indications just last month that the administration was only seeking to tweak the 23-year-old pact.
A White House spokeswoman, Natalie Strom, wouldn’t comment on the report but noted NAFTA has been a “top issue” of the president’s.
“It’s safe to say we’ve been working on addressing the issues with it since the beginning,” she said.
Trump is under pressure to show he has achieved results by his 100-day milestone, which comes on Saturday. Congress and the courts have thwarted his healthcare and immigration overhauls, respectively. Meanwhile, he’s had trouble gaining traction on his trade agenda without a full trade team in place. (His nominee for U.S. trade representative is likely to be confirmed later this week pending agreement on a waiver Senate Democrats say he needs because of his past work for foreign governments.)
But preparations to pull out of NAFTA — even if just a ploy to improve his bargaining position ahead of negotiations — would carry risks by injecting a huge dose of uncertainty into multibillion-dollar trade relationships that encompass vast supply chains and almost every sector of the U.S. economy. That uncertainty is likely to rile markets, Eric G. Altbach, a senior vice president at Washington consultancy Albright Stonebridge Group, argued.
“If we do this, I don’t know that it generates significant additional leverage, but it does generate significant additional anxiety,” said Altbach, who coordinated trade matters at the National Security Council during the Bush administration.
The United States is required to give six months’ notice to the other NAFTA parties if it wants to withdraw from the deal. A move to start that clock could be seen as a tactical ploy to pressure Canada and Mexico to make quick concessions in a renegotiation. The administration has already made clear its intention to reopen the pact, though it has yet to notify Congress of its plan, which would kick off a 90-day period before talks could begin.
Pulling out of NAFTA would hardly be a win for the United States, particularly with respect to trade with Mexico. (Trade terms for Canada might revert to those that existed under the U.S.-Canadian Free Trade Agreement prior to NAFTA.)
After six months, the president would have the power to reset tariffs that disappeared under NAFTA. But the U.S. could reimpose duties only as high as the “bound tariffs” it negotiated with the World Trade Organization, or else it would violate WTO rules. Meanwhile, Mexico’s bound tariffs are much higher than America’s — which would make U.S. exports there less competitive — which would just worsen the U.S. trade deficit with Mexico.
Whether it’s real or just a head fake, any move to rip up NAFTA will elicit a strong response from farm states and their largely Republican representatives in Congress. American farmers last year sent $18 billion worth of exports to Mexico, which is the top export market for American corn and dairy products.
The U.S. Grains Council, a trade association that represents corn, barley, and sorghum producers, in a statement Wednesday said it is “shocked and distressed” to see reports that the administration is weighing an order to withdraw from NAFTA.
Trump may also run afoul of Democrats in Congress, with whom he has found some common ground on trade, if he moves in unilateral fashion.
“The president is playing with fire here if he doesn’t work with Congress to decide the fate of this trade agreement,” said Rep. Bill Pascrell (D.-N.J.), the ranking member on the House Ways and Means Subcommittee on Trade.
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