U.S. Commerce Secretary Wilbur Ross is moving fast indeed to open talks to revamp the North American Free Trade Agreement.
On Friday, less than two weeks into the job, Ross said “sometime in the next couple of weeks” he would send a letter to Congress triggering the 90-day notice period before the U.S. can reopen talks with Canada and Mexico on the pact. That would put the start date for the talks sometime around July. He made the announcement at a news conference at the Commerce Department with his Mexican counterpart Economy Minister Ildefonso Guajardo by his side.
But many economists wonder if renegotiating NAFTA will achieve the effect the Trump administration intends. Trump and White House National Trade Council chief Peter Navarro have assailed trade deficits, claiming they have harmed American workers.
Putting aside the wisdom or folly of making trade policy based on trade deficits, ending NAFTA would devalue the Mexican peso, which would make Mexican goods cheaper and thereby widen the deficit with the U.S., Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, said in a post Friday.
“Certainly, that is not the end result the U.S. administration would like to see, even if they believe NAFTA to be ‘worst trade deal ever negotiated,’” de Bolle wrote.
Mexican officials, for their part, have also pointed out that any economic slump at home is likely to lead to an increase in migration pressures northward, another outcome the Trump administration presumably is trying to avoid.
The race to reopen NAFTA is fruit of President Donald Trump’s campaign rhetoric, and once elected, he said Ross — and not his designee for U.S. Trade Representative Robert Lighthizer — would be the point man for negotiations.
Normally the trade rep coordinates administration policy on trade issues, and some trade experts doubt that such nitty-gritty negotiations can be carried out without the trade representative calling the shots. But in any case, Ross isn’t waiting for Lighthizer, who still needs a special waiver before he can be confirmed by the Senate. (He worked on behalf of Brazil in a 1985 trade dispute, and for a Chinese firm in a 1991 spat.)
But ultimately Ross’s biggest challenge may not be whether Lighthizer is there to shepherd tough negotiations, but whether Washington will have enough leverage to push for the kinds of politically-agonizing concessions from Mexico that the administration is seeking. Recent efforts to tweak NAFTA were done thanks to the juicy carrot of membership in the 12-nation Trans Pacific Partnership. Updating a mere three-way deal give the United States a lot fewer carrots to dangle.
In an interview with Foreign Policy, de Bolle added that Mexico has been diversifying supply chains, signing 10 free trade agreements with 45 countries, meaning it doesn’t necessarily have to rely on American products.
“Given the state of play here, Mexico is exploring other avenues, and there are some very clear ones for them,” she said.
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