The North American Free Trade Agreement was edging closer toward collapse as negotiators gathered for a fourth round of contentious talks this week.
WASHINGTON — The North American Free Trade Agreement (NAFTA), long disparaged by President Donald Trump as bad for the United States, was edging closer toward collapse as negotiators gathered for a fourth round of talks here this week.
In recent weeks, the Trump administration has sparred with American businesses that support NAFTA and has pushed for significant changes that negotiators from Mexico and Canada say are nonstarters. All the while, the president has continued threatening to withdraw the United States from the trade agreement, which he has maligned as the worst in history.
As the trade talks began on Wednesday, Trump, seated in the Oval Office beside Prime Minister Justin Trudeau of Canada, said it was “possible” that the United States would drop out of NAFTA.
“It’s possible we won’t be able to make a deal, and it’s possible that we will,” the president said. “We’ll see if we can do the kind of changes that we need. We have to protect our workers. And in all fairness, the prime minister wants to protect Canada and his people also. So we’ll see what happens with NAFTA, but I’ve been opposed to NAFTA for a long time, in terms of the fairness of NAFTA.”
Trudeau, in comments later at the Canadian Embassy, said he remains optimistic about the potential for a deal but noted that Canadians must be “ready for anything.”
The collapse of the 1994 trade deal would reverberate throughout the global economy, inflicting damage far beyond Mexico, Canada and the United States and affecting industries as varied as manufacturing, agriculture and energy. It would also sow at least short-term chaos for businesses like the auto industry that have arranged their North American supply chains around the deal’s terms.
The ripple effects could also impede other aspects of the president’s agenda, for example, by solidifying political opposition among farm-state Republicans who support the pact and jeopardizing legislative priorities like tax reform. And it could have far-reaching political effects, including the Mexican general election in July 2018 and Trump’s own re-election.
Business leaders have become spooked by the increasing odds of the trade deal’s demise, and on Monday, more than 310 state and local chambers of commerce sent a letter to the administration urging the United States to remain in NAFTA. Speaking in Mexico on Tuesday, the president of the U.S. Chamber of Commerce, Thomas J. Donohue, said the negotiations had “reached a critical moment. And the chamber has had no choice but ring the alarm bells.”
The potential demise of the trade deal prompted supportive messages from labor unions, including the AFL-CIO and the United Steelworkers, as well as some Democrats.
“Any trade proposal that makes multinational corporations nervous is a good sign that it’s moving in the right direction for workers,” said Sen. Sherrod Brown, D-Ohio.
If the deal does fall apart, the United States, Canada and Mexico would revert to average tariffs that are relatively low — just a few percent in most cases. But several agricultural products would face much higher duties.
For months, some of the most powerful business leaders in the country, and the lobbies and political figures that represent them, had hoped that the president’s strong wording was more a negotiating tactic than a real threat and that he would ultimately go along with their agenda of modernization. NAFTA is nearly a quarter-century old, and people across the political spectrum say it should be updated for the 21st century while preserving the open trading system that has linked the North American economy.
The pact has allowed industries to reorganize their supply chains around the continent to take advantage of the three countries’ differing resources and strengths, lifting the continent’s economies and more than tripling America’s trade with Canada and Mexico since its inception. Economists contend that many workers have benefited from these changes in the form of higher wages and employment, but many workers have lost their jobs as manufacturing plants relocated to Mexico or Canada.
Most business leaders had hoped that the president, whose NAFTA criticism has been unrelenting, would be content to oversee tweaks to modernize the agreement, and then call it a political transformation.
It sometimes looked as if that might be the case. The appointment of Robert Lighthizer as U.S. trade representative, who pledged in his confirmation hearing to “do no harm” to NAFTA, reassured many on Capitol Hill, where Lighthizer had long served in aide roles. And when the administration released its negotiating goals in July for the deal, they echoed many priorities of previous administrations.
But now, eight weeks into trade talks, the administration continues to push for concessions that the business community warns would essentially undermine the pact, and which few observers believe Canada and Mexico could agree to.
“Everyone knows that much of what is being proposed in key areas are, in effect, nonstarters, which begs the question as to what, exactly, the administration is trying to achieve,” Michael Camuez, a former assistant secretary of commerce under President Barack Obama, wrote in an email. It’s not unreasonable to think that by accommodating the president’s most extreme positions, American negotiators are “simply giving Trump cover to do what he really wants: withdraw from the agreement,” he said.