Just a week into talks to rewrite the North American Free Trade Agreement, President Donald Trump is already threatening to abandon the 23-year-old pact with Canada and Mexico.
At a high-profile campaign-style rally in Phoenix on Tuesday night, Trump predicted that the United States would "end up probably terminating" NAFTA "at some point," though he said he hadn't made a final decision.
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"Personally," Trump said, "I don't think we can make a deal because we have been so badly taken advantage of."
The president had made the same threat in April but then reversed himself after a pushback from American businesses, especially farm groups, which have benefited from expanded access to the Mexican market resulting from NAFTA.
The president's renewed threat Tuesday reignited such concerns.
"Abruptly ending NAFTA could create a string of unintended consequences that need to be carefully considered," said Ann Wilson, an executive at the Motor & Equipment Manufacturers Association, which represents auto suppliers. "Mexico and Canada are trusted trade partners to the U.S., and, as a result, we are strong national security partners. We should not take that for granted."
NAFTA erased most trade barriers separating the U.S., Canada and Mexico and fostered a rapid rise in commerce and closer diplomatic ties among the three countries. But the agreement has long fueled heated criticism in the United States because it led some American-based manufacturers to move operations south of the border to capitalize on lower-wage Mexican labor.
Trump has condemned NAFTA as "the worst trade deal in history" and promised to fix it — or drop out of it altogether.
As negotiations on a NAFTA overhaul began last week in Washington, there was wide agreement on the need to modernize the pact to reflect changes over the past two decades, such as the rise of e-commerce.
Still, U.S. Trade Rep. Robert Lighthizer warned that the United States wouldn't settle for a "mere tweaking of a few provisions and an updating of a few chapters." Saying NAFTA had cost America hundreds of thousands of jobs, Lighthizer insisted on the need to take steps to reduce America's trade deficit and to ensure that more of the goods that qualify for NAFTA's duty-free status be made in the United States. Canada and Mexico oppose that idea.
Most economists say NAFTA has had only a modest net effect on U.S. jobs because expanded commerce with Canada and Mexico has also created jobs and because trade represents a relatively small part of the U.S. economy.
After a five-day opening round, the three countries issued a statement that said they would resume talks in Mexico on Sept. 1-5; in Canada in late September; and back in the United States in October. More rounds will likely follow.
James Jones, who served as President Bill Clinton's ambassador to Mexico and helped negotiate NAFTA in the mid-1990s, predicted that Lighthizer and his team of negotiators would seek to use Trump's tough talk to their advantage.
"They'll try to play it in a way that strengthens their hands," said Jones, now chairman of the financial advisory firm Monarch Global Strategies. "They'll tell the other negotiating teams, 'I'm reasonable, but I report to a boss who's less reasonable.' "
Jones predicted that "sanity will prevail" — that the U.S. government will recognize that the United States benefits from an economically unified North America.
Daniel Ujczo, a trade lawyer with Dickinson Wright, said he doubts that an overhauled NAFTA would do much to narrow America's trade deficit or restore lost U.S. manufacturing jobs — results that Trump had vowed to deliver to the blue-collar voters in the Midwest who helped elect him.
"There's not enough red meat to be gained in the NAFTA modernization to satisfy those voters," Ujczo said. "The president's going to have to make a choice when he get a pretty vanilla NAFTA modernization — whether or not he's going to withdraw."
A U.S. move to abandon the agreement would likely trigger a political furor. American manufacturers have invested heavily in supply chains that straddle NAFTA borders and have come to depend on duty-free shipments within the trade bloc. In Congress, farm-state lawmakers have urged U.S. negotiators to do nothing that would imperil U.S. agricultural exports to Mexico and Canada.
"NAFTA has been incredibly successful for our industry," said Jennifer Myers, a spokeswoman for the National Corn Growers Association. "We are closely monitoring negotiations and will continue to advocate for corn farmers' interests throughout this process."
Monarch's Jones predicted that "sanity will prevail" and that the U.S. will remain in NAFTA.
Canada brushed off suggestions that Trump's threats would disrupt the talks.
"Trade negotiations often have moments of heated rhetoric," said Adam Austen, spokesman for Chrystia Freeland, Canada's minister of foreign affairs. "Our priorities remain the same, and we will continue to work hard to modernize NAFTA, supporting millions of middle class jobs."
A refresher on NAFTA can be viewed here: https://youtu.be/21_qyaYKMKs
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