WASHINGTON – President Trump on a trip to Wisconsin this week reiterated his plans to overhaul or eliminate the North American Free Trade Agreement, but observers in D.C. believe the United States can’t credibly threaten to pull out of the 23-year-old trade deal.
During his presidential campaign Trump called NAFTA the worst deal in the history of trade, and on Wednesday in Wisconsin he said, “We’re going to make some very big changes or we’re going to get rid of NAFTA once and for all.”
“I think President Trump’s threats to [pull out of the agreement] were not just bluffs but very bad bluffs,” Matt Gold, former deputy assistant to the U.S. Trade Representative for North America, said Thursday during a policy forum at the Rayburn House Office Building. “I don’t think the Mexicans and Canadians took him seriously for a second.”
Gold said that the three countries are essentially handcuffed together, based on the economics of the deal. For example, in Mexico the U.S. holds a 98 percent share of market imports for corn. Last year, Mexico bought $2.5 billion worth of corn from the U.S.
With Trump’s threats to exit NAFTA or implement burdensome tariffs, there have been government and private sector discussions in Mexico to purchase corn and other products from Brazil and Argentina, in order to insulate the country from risk. If Mexico decided to scale back trade with the U.S. even slightly, it could have major impacts. Reducing the U.S. market share on corn imports in Mexico to 88 percent would represent a $250 million shortfall for the U.S., for example.
“Wouldn’t you, if you were in Mexico’s position, and you thought the corn from the U.S. might cost more if tariffs were reimposed, wouldn’t you want to hedge your bets a little bit?” said Ambassador Darci Vetter, former chief agricultural negotiator for the Office of the U.S. Trade Representative.
The White House is expected to outline a specific set of negotiation objectives in the coming weeks, which will offer clarity on whether Trump wants to overhaul or eliminate the trade agreement. The objectives will then be sent to Congress for review, starting a 90-day process. That means that negotiations with Mexico and Canada would not start until August at the earliest.
Gold said that every presidential campaign since NAFTA’s signing in 1994 has paid lip service to NAFTA, with candidates offering unrealistic promises, including from both Trump and Sen. Bernie Sanders (I-Vt.). Tens of thousands of manufacturing jobs were lost in the U.S. when NAFTA was signed; Gold said that Sanders and Trump validated beliefs that NAFTA is “why their dog died” or “why their spouse left them.”
“Even if we got everyone single change in NAFTA that we wanted to get, guess what? It’s not going to bring your dog back or your spouse, or stop floods, or bring the tens of thousands of manufacturing jobs back that we lost,” Gold said.
He also opined that the concept that the U.S. has more leverage in a bilateral or trilateral negotiation than it does in a multilateral is false.
“This is really the analysis of someone who looks at negotiation the way a 9-year-old would set negotiations,” he said. “The truth is exactly the opposite. The thought process of the Trump administration is, ‘We’re big. They’re little. If we get them alone in a room we bully them.’”
One key issue in NAFTA negotiations is labor rights. Many are calling for the application of international labor rights in Mexico. Currently, Mexican workers make about a fifth of what Americans earn, which significantly influences domestic hiring in the U.S.
Another issue is border taxes. Both Mexico and Canada apply a value-added tax to all products sold on the market. The U.S. does not have a VAT, so it’s at a competitive disadvantage.
Other issues include trade deficits, currency enforcement, rules of origin, the investment chapter of NAFTA and government procurement.