Canada, Mexico Are Skeptical of Trump's Nafta Remarks

By Robbie Whelan in Mexico City and Bob Davis in Washington Features Dow Jones Newswires

Government officials from Mexico and Canada reacted with skepticism Wednesday to remarks by President Donald Trump suggesting he didn't believe a deal to renegotiate the North American Free Trade Agreement was possible.

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"I don't think we can make a deal. So I think we'll end up probably terminating Nafta at some point," Mr. Trump said during a speech Tuesday night in Phoenix. "I personally don't think you can make a deal without a termination, but we're going to see what happens, OK?"

Mexico's currency weakened against the dollar early Wednesday, with some analysts attributing it to Mr. Trump's remarks, but recovered most of the lost ground later in the day. One dollar bought 17.68 pesos Wednesday afternoon, compared with 17.66 Tuesday.

Mexican Foreign Minister Luis Videgaray pointed out that Mr. Trump wrote an entire book about bluffing early on in negotiations to get a better outcome.

"What we're clearly seeing is a negotiating strategy from a man who has been negotiating in this peculiar way his whole life," he said in a radio interview in Mexico. "It's an aggressive strategy -- he even wrote a book about it, about how to negotiate. I think this doesn't come as a surprise; we've heard it for many months,"

A representative of Chrystia Freeland, Canada's minister of foreign affairs, said in a statement that Canada remains focused on promoting Canada-U.S. trade.

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"Trade negotiations often have moments of heated rhetoric," the statement read. "Our priorities remain the same, and we will continue to work hard to modernize Nafta, supporting millions of middle-class jobs."

Mr. Trump has been promising since the beginning of his presidential campaign to renegotiate Nafta or pull out of the pact if the U.S. is unable reach terms it deems sufficiently favorable.

In April, he threatened to unilaterally pull out of the agreement, but was persuaded not to after phone calls from Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau. Formal renegotiation talks began Aug. 16 in Washington.

U.S. negotiators believe they can turn Mr. Trump's threats to withdraw from Nafta into leverage, particularly in talks with Mexico.

"President Trump has been clear from the very beginning that if the Nafta renegotiation is unsuccessful, he will withdraw from the agreement, " said U.S. Trade Representative Robert Lighthizer in a statement. Mr. Lighthizer said the U.S. is looking for "substantial changes" in the pact.

Others in Washington, however, largely view Mr. Trump's words as an empty threat. Warren Maruyama, USTR's general counsel during the George W. Bush administration, said he doubted the threat would make a difference in Mexico City.

"The Mexicans have political constraints," said Mr. Maruyama, now a law partner at Hogan Lovells. "If it looks like Trump is leading Mexico around by the nose, and you're a Mexican trade negotiator or politician, you're in trouble."

In Mr. Trump's 1987 best-selling business book, "Trump: The Art of the Deal," he advised deal-makers to begin negotiations aggressively, keep as many options as possible open to them and never overcommit to a particular deal before it's done.

"The worst thing you can possibly do in a deal is seem desperate to make it," Mr. Trump wrote. "That makes the other guy smell blood, and then you're dead."

Threatening to pull out of Nafta is "clearly a hardball tactic" meant to gain leverage to the U.S. in the talks, and is typical of the president's negotiating style, said Guhan Subramanian, a professor at Harvard University's business and law schools and an expert in the negotiation of complex deals.

"By describing the way you negotiate you can give visibility to the other side, but the difference here is that President Trump has repeatedly said that he really doesn't like Nafta," Mr. Subramanian said. "The other side might say, 'Well, he's just bluffing,' but because he's said it so many times, it lends a bit of credibility here, that it might very well be true."

There is little support in Congress for withdrawal. Indeed, even U.S. labor unions, staunch opponents of Nafta, don't call for the U.S. to withdraw.

Should tariffs return to pre-Nafta levels, Mexico's would be much higher than those of the U.S., harming U.S. exports and the jobs associated with them, say labor officials.

Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, a free-trade think tank in Washington, D.C., said he believes a withdrawal would wind up facing a court challenge. "If a state sues, that's the rocket docket to the Supreme Court," Mr. Hufbauer said

--Anthony Harrup and David George-Cosh contributed to this article.

Write to Robbie Whelan at robbie.whelan@wsj.com and Bob Davis at bob.davis@wsj.com

(END) Dow Jones Newswires

August 23, 2017 18:08 ET (22:08 GMT)