Building the Trade Wall
In the past few weeks, the Trump administration has been forced to address major policy topics—ranging from gun control to disaster relief— that in most cases left the White House scrambling to develop a coherent reaction. Following Las Vegas, Puerto Rico, and other recent uncontrollable circumstances, as well as the more long-term disappointments like the failure of Obamacare repeal and the dismal prospects of the Mexican border wall, Trump and his team needed something to work on to recover their dignity and save face; this week, they found it in NAFTA.
NAFTA, or the North American Free Trade Agreement, is one of the international trade deals that Trump slammed during the campaign, lamenting the “disaster” it was proven to be for the U.S. economy and promising to improve it or pull out entirely. Now, in the fourth round of what have so far been constructive negotiations, he has the power to do just that, threatening the foundation upon which 25 years of trade are built.
For context, NAFTA began as a bilateral agreement with Canada in 1989, with Mexico joining 5 years later. The agreement, highly controversial at the time, provided for the progressive elimination of tariffs, which it achieved by 2008 (with limited exceptions); the results have been mixed. According to one former U.S. Trade Secretary, U.S. manufacturing exports to Canada and Mexico have increased significantly, as have Mexican exports to its northern neighbor. On the other hand, the deal failed to bring about the promised economic growth — though this was undoubtedly impacted by a series of economic recessions in the U.S. and Canada — and the wage gap between Mexico and its two partners remains striking.
Now, President Trump has the chance to make good on his reputation and make a better deal that prioritizes America, or even rescind U.S. participation entirely. In a recent interview with Forbes magazine, Trump addressed the upcoming talks, saying, “I happen to think that NAFTA will have to be terminated if we’re going to make it good. Otherwise, I believe you can’t negotiate a good deal. I consider [stopping the Trans Pacific Partnership] a great accomplishment… and there are many people that agree with me. I like bilateral deals.”
This obsession with bilateralism fits the business background from which Trump emerged, and prompted his withdrawal of the U.S. from the Trans Pacific Partnership last January; he appears prepared to take down multilateralism again, proposing the separation of NAFTA into two distinct agreements — one with Canada and one with Mexico.
Though negotiations are confidential, the United States reportedly has several propositions which the U.S. Chamber of Commerce described as “poison pills” that could kill the deal; these include a “sunset proposal” that would require re-certification by members every few years, as well as changes to dispute settlement clauses. Current Secretary of Commerce Wilbur Ross rejected the notion that the U.S. wants to terminate the agreement, though he did acknowledge that termination is “at least a conceptual possibility moving forward.”
Following talks on Wednesday, Canadian Prime Minister Justin Trudeau weighed in briefly, saying, “Circumstances are often challenging, and we have to be ready for anything, and we are; Canadians are aware the Trump administration makes decisions that surprise people from time to time.” President Nieto of Mexico has kept largely silent, though his Foreign Affairs Minister promised that Mexico will “not be told what to do.” The Mexican economy is already facing consequences from the potential collapse of NAFTA, however, with the peso in decline in anticipation of the change.
For now, negotiations are still in process, and details remain classified; onlookers can only watch and wait for the outcome of this critical turning point, which could have consequences for our economy, as well as those of Canada and Mexico, that reach far into the future. With the fate of the continent’s commerce hanging in the balance, we can only hope that Mr. Trump puts serious consideration into fixing what he once called “one of the worst trade deals ever.” Otherwise, our trade could be impeded by some seriously unwelcome walls on both borders.
