Business & Tech

Trump’s tough talk on NAFTA raising fears of pact’s demise

WASHINGTON — The North American Free Trade Agreement, long a punching bag for President Trump, is edging closer toward collapse as negotiators gather for a fourth round of contentious talks here this week.

In recent weeks, the Trump administration has sparred with US businesses that support NAFTA and has pushed for significant changes that negotiators from Mexico and Canada say are nonstarters. All the while, the president has continued threatening to withdraw the United States from the trade agreement, which he has maligned as the worst in history.

On Wednesday, as he sat beside Prime Minister Justin Trudeau of Canada in the Oval Office, Trump again said it was “possible” that the United States would drop out of
NAFTA.

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“It’s possible we won’t be able to make a deal, and it’s possible that we will,” the president said. “We’ll see if we can do the kind of changes that we need. We have to protect our workers. And in all fairness, the prime minister wants to protect Canada and his people also. So we’ll see what happens with NAFTA, but I’ve been opposed to NAFTA for a long time, in terms of the fairness.”

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Some fear that a collapse of the 1994 trade deal would send shock waves throughout the global economy, inflicting damage far beyond Mexico, Canada, and the United States and impacting industries as varied as manufacturing, agriculture, and energy. It would also sow at least short-term chaos for businesses, including the auto industry, that have arranged their North American supply chains around the deal’s terms.

The ripple effects could also impede other aspects of the president’s agenda, for example, by solidifying political opposition among farm state Republicans who support the pact and jeopardizing legislative priorities such as tax reform. And it could have far-reaching political effects, from the Mexican general election in July 2018 to Trump’s own reelection campaign.

Business leaders have become spooked by the increasing odds of the trade deal’s demise, and on Monday, hundreds of state and local chambers of commerce sent letters to the administration urging the United States to remain in NAFTA. Speaking in Mexico on Tuesday, the president of the US Chamber of Commerce, Tom Donohue, said the negotiations had “reached a critical moment. And the chamber has had no choice but ring the alarm bells.”

“Let me be forceful and direct,” he said. “There are several poison pill proposals still on the table that could doom the entire deal.”

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If the deal does fall apart, the United States, Canada, and Mexico would revert to average tariffs that are relatively low — just a few percent in most cases. But several agricultural products would face much higher duties. US farmers would see a 25 percent tariff on shipments of beef, 45 percent on turkey and some dairy products, and 75 percent on chicken, potatoes, and high fructose corn syrup sent to Mexico.

For months, some of the most powerful business leaders in the country, and the lobbies and political figures that represent them, had hoped that the president’s strong wording was more a negotiating tactic than a real threat and that he would ultimately go along with their agenda of modernization. NAFTA is nearly a quarter-century old, and people across the political spectrum say it should be updated for the 21st century while preserving the open trading system that has linked the North American economy.

The pact has allowed industries to reorganize their supply chains around the continent to take advantage of the three countries’ differing resources and strengths, lifting the continent’s economies and more than tripling America’s trade with Canada and Mexico since its inception. Economists contend that many workers have benefited from these changes in the form of higher wages and employment, but many workers have lost their jobs as manufacturing plants relocated to Mexico or Canada, making NAFTA a target of labor unions, many Democrats, and a few industries.

Most business leaders had hoped that the president, whose NAFTA criticism has been unrelenting, would be content to oversee tweaks to modernize the agreement, and then call it a political transformation.