The atmosphere surrounding the talks to renegotiate the North American Free Trade Agreement is so bad that many stakeholders are contemplating the possibility that they could fail completely and President Trump follows through on his threats to pull the U.S. out of the 1993 trade pact among the U.S., Canada, and Mexico.
Business groups and the U.S.’s trading partners for the first time in a quarter century are pondering the landscape of a world where NAFTA no longer sets the standard.
To a certain extent, the damage has already been done, said an official at one major trade association who requested anonymity. Even if the talks manage an 11th hour deal and the White House claims victory, the experience may have made Canada and Mexico think they need to look beyond the U.S. as a trading partner.
“The concern people have is, ‘How seriously do the other countries take Trump’s threats? Does this kind of talk make them think that they need to diversify their supply chains?’” the source said.
Jamie McInerney, executive director of the Trade Leadership Coalition, a pro-NAFTA group, says there has already been some movement in that direction. “Canada has executed a deal with the European Union. Mexico is looking to do the same thing,” he noted.
“It’s very simple: If today I’m the top buyer of yellow corn, of fructose, rice, chicken, pork from the U.S., I need to open a space for trade with Brazil and Argentina so that at the table people realize that we have options," Mexican Economic Minister Ildefonso Guajardo, his country’s top NAFTA negotiator, said in an October speech.
Mexico also is looking to make deals with Japan and China, according to a source with knowledge of its plans. Such signals could be part of Mexico’s negotiating tactics.
Agriculture Secretary Sonny Perdue said last week that his department was "talking with the administration and Congress about some mitigation efforts" to protect farmers and ranchers should commodities prices "respond negatively to any kind of NAFTA withdrawal."
The U.S.' NAFTA fans are reluctant to talk about the trade deal in the past tense while the negotiations continue. The talks will go through December, and the trade association source noted that there's still time for the talks to get back on track even though negotiators are only now getting at "the hard issues."
John Murphy, the Chamber of Commerce's senior vice president for international policy, told reporters last month that he was "increasingly concerned" that there could be a "chaotic breakdown" in the talks.
The fifth round of talks is set to start Friday in Mexico City. Some of the negotiators may arrive early to meet unofficially. It was not clear if U.S. representatives would be among that group, a source with knowledge of the talks told the Washington Examiner, suggesting that it only Canadian and Mexican officials would be meeting. Others with knowledge of the talks downplayed the reports, saying it wasn’t unusual for negotiators to arrive early to cover the preliminaries.
Such intrigues were the latest indication of talks’ troubles. The previous round in Arlington, Va., was extended by two days and ended with the top negotiators publicly trading barbs at the conclusion.
The Trump administration has pushed for radical revisions to the pact, including an end date, allowing countries to opt out of the investor-state dispute settlement system and to increase the requirement for when an item can be labeled “made in America," among other changes. Canada and Mexico have resisted the proposals, prompting U.S. Trade Representative Robert Lighthizer to say he was “surprised and disappointed by the resistance.”
The big question for many is how serious Trump is about pulling out of the deal should he not get his way. He has long argued that the U.S.’s trading partners got the better end of NAFTA deal.
In April, Trump was on the verge of signing an executive order formally pulling the U.S. out, only to be talked out of it at the last minute by Cabinet members and by appeals from Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau.
The abrupt reversal left many scratching their heads. Some assumed it meant that Trump was wishy-washy on a pullout. Most business groups were soothed by comments ahead of the renegotiations from officials such as Commerce Secretary Wilbur Ross that the administration would first seek to “do no harm.”
Even now, many assume that Trump’s warnings are just a negotiating tactic. A November survey of investor groups by the Trade Leadership Coalition found that a slight majority, 55 percent, agreed with the statement that the threats were "merely posturing." About a third, 32 percent, believed the threats were real.
That is its own problem, notes McInerney: “The stock market is not yet factored in the possibility of a pullout. A break will cause the market to crash.”
Business trade groups and pro-NAFTA lawmakers have been sounding the alarm. “We are fighting a pervasive view that our economy has not benefited from NAFTA. We are coming to a crossroads, and the decisions made on international trade will determine the future economic success of our country," Sen. Pat Roberts, R-Kan., said at an October forum hosted by the Chamber of Commerce.