White House Considers Formal Threat to Withdraw From Nafta -- 2nd Update

The Trump administration is debating whether to issue a formal threat to withdraw from the North American Free Trade Agreement, as part of its strategy to renegotiate the 23-year-old pact with Mexico and Canada, according to White House officials.

It is unclear whether President Donald Trump will take the dramatic step of issuing a Nafta withdrawal notice -- and even if he does, whether he would actually follow up by pulling the U.S. out of agreement. The pact requires any party to give six months' notice for withdrawing.

But two people familiar with White House deliberations said the option would be discussed at a meeting Wednesday of the National Economic Council.

The White House "is taking a look at all options," said one of these people. The person noted that Mr. Trump regularly attacked Nafta as "a disaster" on the campaign trail, and has continued to do so in the early days of his administration.

As his presidency nears the 100-day mark this Saturday, the White House is scrambling to show that Mr. Trump has moved to meet many of his campaign promises, including reorienting U.S. trade policy.

A Nafta overhaul "is a major campaign pledge of the president and he's spoken about it throughout the first 100 days," this person said.

The internal discussion, first reported Wednesday morning by Politico, touched off a swift backlash from American business groups and members of Congress, rallying to try to quell the prospect before it gains traction inside the White House.

The mere speculation of a Nafta pullout jolted financial markets, with the Mexican peso falling 1.7% to its biggest daily loss since January. The Canadian dollar, which has been battered by trade tensions with the U.S. this week, also edged 0.3% lower.

A spokesman for Mexico's Economy Ministry, which handles trade issues, said the ministry had no comment as the report isn't official information.

Earlier Wednesday, Canadian Foreign Minister Chrystia Freeland told reporters in a conference call that Canada "was ready to come to the table" to begin talks on a revamped Nafta. Until then, she said she wouldn't comment on the state of Nafta talks.

Mr. Trump and his aides have made no secret of their desire to launch a formal renegotiation of Nafta as soon as possible, to recraft it in a way that would somehow slow, or even reverse, the flow of manufacturing investment to Mexico, and to curb the U.S. trade deficit with its southern neighbor. In recent days, Mr. Trump also has ratcheted up his criticism of Canada, accusing it of unfair trade in dairy and moving to impose curbs on lumber imports from Canada.

The open question is just how far Mr. Trump is willing to go to try to pressure the two countries to offer concessions to the U.S., and to do so quickly. Advocates of a withdrawal notice appear to see it as a club to get extra bargaining leverage, not necessarily as a plan to really pull out of the agreement, which could create disorder across the continental economy that has integrated over the past two decades with supply chains woven around Nafta provisions.

Business leaders are warning the White House that a formal withdrawal threat could backfire, especially with in Mexico, where Mr. Trump's steady threats against the country over the past two years have stoked political turmoil ahead of next year's presidential election, feeding support for an anti-U.S. populist candidate.

"Withdrawing from Nafta would have disastrous consequences for U.S. businesses and workers, benefiting our competitors in Europe and Asia, including China," said Joshua Bolten, chairman of the Business Roundtable, which represents some of the biggest U.S. firms. Led by George W. Bush's former chief of staff, the group is working with the administration on as many fronts as possible to avoid a collapse of Nafta.

Several business groups and lawmakers in Washington were rallying their members on Wednesday to try to talk the administration out of the threat.

"There are some things that sound good politically but are potentially dangerous in the real world," said Kent Bacus, an official with the National Cattlemen's Beef Association, whose members rely heavily on exports across both borders. "For the U.S. beef industry, withdrawing from Nafta is one of the most dangerous moves we can make at this time."

Republican lawmakers also moved to try to block the president from taking such a momentous step on Nafta. Texas Rep. Kevin Brady, the top trade lawmaker in the House, issued a statement saying he supports Mr. Trump's desire to renegotiate Nafta, but added that "this important agreement should stay in place as we continue to improve it."

Arizona Sen. John McCain, whose border state has benefited heavily from Nafta, tweeted: "Withdrawing from #NAFTA would be a disaster for #Arizona jobs & economy..."

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and Peter Nicholas at peter.nicholas@wsj.com

(END) Dow Jones Newswires

April 26, 2017 18:34 ET (22:34 GMT)