Trump’s NAFTA Plans Are On a Collision Course With Absolutely Everyone
Canada and Mexico want to modernize the trade agreement. But the White House is heading in the opposite direction.
With another round of NAFTA negotiations due to begin next week, President Donald Trump’s trade demands increasingly appear to be on a collision course with Mexico, Canada, American businesses, and even a majority of Americans.
Calling NAFTA a bad deal, the president has prodded Mexico and Canada into talks to modernize and update the agreement; the 25-year old pact predates much of the digital economy, and even free traders see a lot that could be tweaked. But new U.S. proposals threaten to derail talks entirely.
Those include a “sunset clause,” which would require any new agreement to be renegotiated every five years; restrictions on government procurement contracts; and, most controversially, a requirement that cars include at least 50 percent U.S. content, a sharp reversal from current rules and a dismissal of Mexican and Canadian opposition to such national-content rules.
Those proposals are “red lines” that would push Mexico away from the bargaining table, a group of Mexican senators said this week.
It’s not that NAFTA is universally beloved in Mexico. It’s long faced some criticism, where many believe that it has primarily benefited big business and the United States, and made Mexico a lot more dependent on the American economy. But in the wake of Trump’s attacks on NAFTA, many Mexicans have rallied behind the agreement that helped modernize Mexico’s economy and made it the United States’ second-largest export market.
“Withdrawing from NAFTA would not be a solution to the problems that we face,” said Karen Antebi, an economic counselor at the Mexican embassy’s trade and NAFTA office in Washington. Trump has “a vision of zero-sum trade where I fear the only winners will be our overseas competitors,” she said at an event at Georgetown University Law Center on Friday.
Asked if the local-content rules for cars could drive Mexico away from negotiations, Antebi said, “We have been very clear that domestic content is something that we are not interested in.” Under current NAFTA rules, just over 60 percent of the components of automobiles must be sourced from the NAFTA countries, which has helped create a thriving cross-border automaking business across all of North America.
NAFTA is hardly under fire in Canada, either, where free trade in general and NAFTA in particular is quite popular. According to a February 2017 Pew Research poll, 74 percent of Canadians believe that NAFTA has benefited their country.
“NAFTA has been working very well for Canada,” said Debra Steger, a professor of business and trade law at the University of Ottawa. “What Canada is looking for is modernization, for security and predictability and improvement, rather than rollbacks and protectionism.”
The Trump administration’s proposals don’t just alarm his trade partners. U.S. businesses are also getting worried about the latest trade ideas. On Friday, the U.S. Chamber of Commerce called several of Trump’s proposals “dangerous,” including the sunset clause, and “extreme” rules of origin requirements.
And even though Trump campaigned against free trade, on the whole, Americans themselves have a positive view of NAFTA and free trade in general. An August 2017 poll from the Chicago Council on Global Affairs found that 53 percent of Americans believe that NAFTA is good for the United States, about the same as the last poll in 2013. And when it comes to the merits of international trade, Americans have really gotten on the bandwagon, with a large majority now saying it is good for consumers, the economy, and job creation.
What’s especially hard for many trade experts to understand is the desire to scrap what has become a model multilateral trade pact.
“At the time NAFTA was completed, there were literally no major free trade agreement relationships in the world,” other than the EU, said Rufus Yerxa, a former deputy U.S. trade representative who helped oversee NAFTA negotiations in the 1990s. Today, he said, there are over 400.
“It’s really a momentous decision to turn your back on something that has become the norm rather than the exception in the international system,” said Yerxa.
There’s another big contrast between the three countries. Canada and Mexico want to modernize the agreement to include intellectual property, e-commerce, big data, and 3-D printing, and update labor and environmental protections. The Trump administration, meanwhile, is looking backward to smokestack industries that play an ever-smaller role in the national economy. Trump has threatened to start trade wars over steel prices and is rejiggering energy policy to subsidize the use of coal for electricity.
“All this talk of coal and steel, that reminds me World War II,” said Antonio Ortiz-Mena, the former head of economic affairs at the Mexican embassy in Washington, DC and now a senior advisor at Albright Stonebridge Group.
Some observers worry that the U.S. proposals are less negotiating ploys, and more possible indications that the administration really does want to walk away from the deal. On Oct. 5, Robert Zoellick, a former U.S. trade representative under George W. Bush, said that there was about a 50 percent chance that Trump would choose to withdraw from NAFTA. And U.S. intransigence makes it increasingly tough for Mexican leaders to stay the course, politically.
As Duncan Wood, the director of the Mexico Institute at the Wilson Center, put it, “Maybe we’re looking at a post-NAFTA reality.”
Correction, Oct. 10, 2017: The Chicago Council on Global Affairs performed the August 2017 poll about American attitudes towards NAFTA. A previous version of this article included an error in the name of this organization.
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Bethany Allen-Ebrahimian is a journalist covering China from Washington. She was previously an assistant editor and contributing reporter at Foreign Policy. Twitter: @BethanyAllenEbr