NAFTA: It's Not Going Away Without A Fight
Even Critics Of The Trade Agreement Are Lending Support For Its Survival
President Trump is not a fan of the North American Free Trade Agreement (NAFTA). That’s no secret.
As a candidate, Trump ripped into the 24-year-old agreement with painful regularity, labeling it the “worst trade deal ever” negotiated by the United States. On the campaign trail, he routinely pledged to withdraw from this “terrible” deal if he couldn’t make it “great.” As President, he has barely tempered his distaste—voicing his unfavorable opinion on Twitter, from the Oval Office, and during campaign-style rallies.
While his animosity may be more pointed toward the Trans-Pacific Partnership (TPP), which he labeled a disaster and from which he withdrew the U.S. on his third day in office, he continues to criticize NAFTA. In fact, citing factory closures and a high trade deficit, the President briefly flirted with the idea of withdrawing from NAFTA even without renegotiation in April.
Will the U.S. withdraw from NAFTA? Should you move your operations out of Mexico? These are two of the most-asked questions these days. The short answer is that nobody—even people who say they do—knows for sure. The longer answer is complicated. It is probably “no” in both cases, but like all things these days, the answer takes longer than 140 characters to explain.
First, the rhetoric against NAFTA has triggered a strong outcry from stakeholders in defense of this agreement. Call it a silver lining to the protectionist sentiment that sometimes emerges from the White House, but the business community has realized that it is now time to protect the supply chains that depend upon trade in general and NAFTA specifically. Since January, companies and industries that use the agreement are raising their voice to point out the jobs and communities whose survival depend on a fully-functioning NAFTA.
This show of support was seen most vividly when President Trump’s April termination musings were met with a huge groundswell of support for NAFTA, even from organized labor and folks in Congress who regularly criticize the agreement. This stands in marked contrast to just a few years ago, when NAFTA was widely regarded as a third rail of trade policy. Nobody knows the future, but it’s clear that NAFTA is not going away without a fight.
Second, in addition to raising its voice, the business community has largely coalesced around the same key principles of ensuring that renegotiation (1) does no harm, (2) keeps NAFTA trilateral, and (3) results in an improved agreement that can be implemented seamlessly. This consensus of opinion is so strong that it is now being echoed by NAFTA supporters in Congress and even by Trump Administration cabinet officials.
Third, the spring rhetoric has now evolved into a more nuanced, practical approach. The 90-day letter announcing the commencement of negotiations carefully used the term “modernization,” recognizing that the agreement was negotiated a generation ago. Perhaps this approach also signals an intention to keep the agreement in place at the end of the process, suggesting that withdrawal may no longer be an option actively being considered either as a viable outcome or a negotiating tactic.
Finally, the Administration is using Trade Promotion Authority (TPA) to govern the domestic consultation process for the development of negotiating objectives, conduct of the talks and Congressional consideration of any final agreement. This is important as it acknowledges Congress’s primacy in trade policy, as enshrined in Article I Section 8 of the Constitution, and adds an extra guardrail on the talks should they begin to veer out of control in the future. So where does that leave us now? The U.S. and its two NAFTA partners—Mexico and Canada—are scheduled to begin talks as early as this month.
Political leaders in all three countries are vowing to conclude the talks speedily, both to eliminate the considerable uncertainty that has been suddenly injected into the regional partnership and to avoid distractions of the 2018 electoral seasons in Mexico and the U.S. The Trump Administration, in particular, is eager to use its negotiating prowess to turn NAFTA into a success before it faces the voters.
It is far from clear what this success will look like. TPA outlines a series of objectives and the Trump Administration has also laid out its own concepts, including the elimination of the trade deficit, the creation of U.S. jobs and the promotion of U.S. manufacturing. Interestingly, Trump Administration officials have also pointed to many provisions in the TPP as items that should be included in NAFTA 2.0.
Of course, combining items from the “disastrous” TPP with the “terrible” NAFTA to make NAFTA successful may well be the first time in trade policy when two wrongs make a right. All joking aside, the TPP may very well provide inspiration for NAFTA, as it included all three NAFTA countries as signatories and because it featured provisions such as e-commerce and trade facilitation that should be included in NAFTA.
The NAFTA exercise holds lessons for broader trade policy as well. Other free trade agreement partners, and potential partners, are watching the NAFTA talks for clues of what may be in store for them. Indeed, less than 24 hours after Trump decided not to walk away from NAFTA he suggested it may be time to walk away from the U.S. free trade agreement (FTA) with South Korea.
Dominican Republic-Central America FTA (CAFTA-DR) countries are nervously watching the talks too—not only because of the precedent but also because it could more directly affect regional trade (positively or negatively). Any threat to CAFTA-DR may be mostly theoretical at this point. In a recent speech, Commerce Secretary Wilbur Ross, who actively helped shape CAFTA-DR while he ran the International Textile Group, said the agreement was working well and would probably only need some tweaks.
During that same speech, Ross indicated NAFTA needed more wholesale changes. He offered one suggestion: changing the name to add in an extra F to reflect the word “fair” in addition to “free.” Perhaps we should go further and add in an extra T to reflect the President’s obvious preference for eponymous initiatives.
The North American Free and Fair Trump Trade Agreement. Now that’s an agreement even President Trump can learn to love.
Stephen Lamar is executive vice president at the American Apparel & Footwear Association (AAFA). He is responsible for the design and execution of AAFA lobbying strategies on a series of issues covering trade, supply chains and brand protection. In these roles, Lamar also advises AAFA member companies on legislation and regulatory policies affecting the clothing and footwear industries. He is also president of the Washington International Trade Association (WITA), a non-profit, non-partisan organization dedicated to providing a neutral forum for discussion of international trade policy and related issues.