Time is running out for President Trump to seal the new and improved trade deal he wants with Canada and Mexico.
Successful talks with U.S. neighbors to the north and south are only half the battle; the next step is winning approval for a revised North American Free Trade Agreement from Congress, which would grow infinitely more difficult if Democrats take control of the House in November’s midterm elections, said Michael Camunez, the head of advisory firm Monarch Global Strategies and a former official in the Obama-era Commerce Department.
“Getting NAFTA done, done correctly, and done soon is important,” he said. Having a strong North American trade deal is crucial to U.S. competitiveness with a rapidly growing China, especially with the loss of the Trans-Pacific Partnership, which was designed to give America additional leverage, he said.
“At the working level, negotiators seem to be making good progress toward an agreement” that reflects Trump’s priorities of trimming a goods-trade deficit with Mexico and addressing access issues to some Canadian markets, Camunez said. Still, he added, “If Democrats take the House, it’s unlikely to get passed, since I don’t see Trump fighting for the kind of labor reforms the far left is going to insist upon.”
That may be a pivotal issue on Wall Street as well as in Washington. White House trade policies, including aggressive tactics with China, have rocked financial markets this year, with the blue-chip Dow Jones Industrial Average dropping nearly 10 percent of from an all-time high of 26,616 in January as Trump announced sweeping metals tariffs along with duties on some $50 billion of Chinese imports.
When Beijing retaliated, the White House doubled down, threatening levies on $100 billion more of the second-largest economy’s goods. That heightened concerns that Trump might spark a trade war, undoing the benefits of a significant tax overhaul that cut the top corporate income rate to 21 percent from 35 percent. Lawmakers, analysts, and economists urged the administration to act cautiously.
While markets now appear to have priced in the tariffs themselves, “the risk of a broader trade war still looms,” cautioned Thomas Verbraken of research firm MSCI. “Market scenarios based on economic studies suggest an all-out trade war could drive global equity prices down another 10 percent, with U.S. investors receiving the worst of it.”
Renegotiating NAFTA against that backdrop merely heightens the risks.
“North America, and therefore NAFTA, are crucial to future competitiveness with China,” Camunez said, “which is all the more reason why it’s so stunning that the Trump administration is simultaneously picking fights with our closest allies, Canada and Mexico, at the same time he’s itching for a trade war with China.”
U.S. concerns with China are far more significant than those with its North American neighbors.
The president has repeatedly complained about the imbalance in trade between the U.S. and China, which totaled $568.4 billion last year for goods and services, and he also cited intellectual property theft when he imposed the first round of tariffs against the country.
With Mexico, by comparison, the U.S. trade balance shifted from a $1.3 billion surplus to a $64 billion deficit since NAFTA was implemented by the Clinton administration in 1994, U.S. Trade Representative Robert Lighthizer said.
In Canada, the U.S. has encountered challenges entering markets for dairy, wine, grain, and other products that the existing deal is unequipped to address, he wrote in a report detailing why NAFTA should be revised.
“We are negotiating trade deals that will work for all Americans,” Lighthizer told the House Ways and Means Committee in March. “In the U.S., the costs of globalization are falling harder on blue-collar workers, and this is something that is bad for the economy and bad for society.”
While some members questioned the administration’s trade tactics, Committee Chairman Kevin Brady, a Texas Republican, backed the administration’s efforts on NAFTA.
An updated agreement, if done correctly, “can create incredible job growth and paycheck growth for America, for our farmers, our workers, and our local businesses,” he said.
Strengthening that alliance would also bolster the U.S. in international negotiations, as would rejoining the Trans-Pacific Partnership, a notion Trump flirted with briefly, emphasizing that he would insist on a better deal than the one offered to Obama.
That’s unlikely to happen, Camunez said, since the U.S. weakened its hand by abandoning the agreement when Trump took office in 2017. Indeed, Australian Trade Minister Steven Ciobo said as much earlier this month.
“We’ve got a deal,” he said. “It’s a good deal. Eleven countries have signed up, we’re firm on the deal, we’re all working to put the deal into effect. I can’t see that all being thrown open now to appease the United States, but we would welcome the United States coming back to the table, and we can have discussions.”
