Pressure on for compromise as Trump ponders Nafta pullout

In the months since his election as president of the United States, Donald Trump has been assailed by critics for not following through on his key promises. But behind the drama and intrigue of the Trump White House, the administration has been making progress on several policy priorities that could have ramifications long after Trump leaves office.

Take Nafta. The North American Free Trade Agreement that was signed in 1994 between the United States, Canada and Mexico was enemy number one during the Trump presidential campaign, with candidate Trump dismissing it as the “worst trade deal ever”. Since assuming office, the Trump team has been busy working on dismantling it, officially notifying Congress in May that it was seeking to renegotiate the deal.

Since then there have been four rounds of negotiations, the latest having taken place this week in Washington.

On Wednesday, Canadian prime minister Justin Trudeau was in Washington, meeting Trump at the White House.

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Growing alarm

His visit reflects growing alarm that the United States could move not just to renegotiate Nafta, but to withdraw from it completely – a development that would have major ramifications for the global economy.

By eliminating most tariffs on goods traded between the three countries, Nafta gave rise to one of the largest trading blocs in the world

Negotiated by president George Bush snr and passed by Bill Clinton, to its supporters Nafta was the apotheosis of free trade and open market liberalism. To others it sacrificed the history and dignity of American manufacturing on the altar of globalisation.

By eliminating most tariffs on goods traded between the three countries, Nafta gave rise to one of the largest trading blocs in the world, and deeply integrated the economies of the United States, Canada and Mexico.

Trade between the three countries tripled, reaching $1.1 trillion (€929 billion) last year. US foreign investment in Mexico also rose as American companies sought cheaper investment locations to make their products more competitive.

But like most trade deals, there were winners and losers. While American companies gained new export markets – US farmers and auto-makers increased their sales to Canada, for example –  some US manufacturers were adversely affected.

Rustbelt states

Though the impact of cheap Chinese products entering the global supply chain after China joined the WTO in 2001 also played a role in the decline of US manufacturing, many industries moved to Mexico, particularly in the automotive trade. As the supply chain became ever more complex, US car makers sourced parts from Mexico, helping to accelerate the industrial demise of the rustbelt states.

The figures were grist to the mill for Donald Trump when he launched his crusade to put 'America first' and bring jobs back to America

Concerns that the United States had been adversely affected by Nafta were fuelled by America’s widening trade deficit with Canada, and particularly its southern neighbour.

While in 1993 America had a $1.7 billion trade surplus with Mexico – an excess of exports over imports – this had changed to a $55 billion trade deficit by 2016, as Mexico swamped the US with cheap exports.  In particular, the auto industry was badly hit, with numbers in the US employed in the car industry shrinking by a third.

The figures were grist to the mill for Donald Trump when he launched his crusade to put “America first” and bring jobs back to America. Studies of America’s trade deficit with various countries – including Ireland, Germany and China – were launched, while a review of Nafta was ordered.

Speaking alongside Trudeau in the Oval Office ahead of their meeting this week, Trump suggested he was prepared to pull out of the deal. “I think Justin understands that if we can’t make a deal, it will be terminated, and that will be fine,” he said, though he also suggested the US would be prepared to sign a bilateral deal with either country if a three-way agreement was not reached.

‘Better outcomes’

In his own press conference at the Canadian embassy on Wednesday before heading to Mexico, Trudeau said maintaining the deal would “produce better outcomes for the citizens of all three countries”, though he admitted: “We have to be ready for anything – and we are.”

Among the proposals under consideration by Washington are a requirement that any car made in Canada or Mexico have at least 50 per cent US content. US commerce secretary Wilbur Ross brushed off talk of effects on US agricultural exporters as an empty threat.

With negotiators aiming to reach a deal before Mexico’s elections next July, pressure is on to find a compromise. In the meantime, business groups are watching nervously.

“Withdrawal from Nafta would put at stake millions of American jobs in every sector of the US economy, the competitiveness of US-produced goods and services, and our country’s standing as a global economic leader,” said the influential business lobby group, Business Roundtable, this week.

It will be hoping a compromise is reached – and fast.