Trump Bluffs on NAFTA
In late April, various rumors of a draft memorandum from the Donald Trump administration notifying Congress that the United States intended to withdraw from NAFTA began to appear. Then on April 27, 2017, Donald Trump told the nation that personal calls from the leaders of Canada and México convinced him to renegotiate NAFTA, rather than to act upon the memorandum to withdraw from the treaty. Under the treaty, any party to the treaty can withdraw six months after making its intention formally. The narrative that was created was that Canada and México asked the Trump administration to reconsider withdrawing and instead negotiate. Trump wants the nation to believe that he was convinced by the governments of Canada and México to negotiate. But what really happened?
On Friday, Reuters reported a different version of México’s response to Trump’s threat to begin the process of withdrawing from NAFTA. According to the report by Mitra Taj, the Mexican government told the Trump administration to forget negotiating NAFTA if Trump filed the six-month notice to begin the process of withdrawing from NAFTA. Taj quotes Mexican Economic Minister Ildefonso Guajardo as stating that the Mexican government’s message to the Trump administration was; “if you guys think we’re going to start negotiations with the trigger pulled on a U.S. exit in six months, forget about it!!” Guajardo was further quoted, “If you do that, just get out already – because there’s no way we’re negotiating under those conditions.”
To be sure, withdrawing from NAFTA would be painful for the Mexican economy. However, the United States is not immune from the economic pain and thus Donald Trump has been backtracking on his NAFTA threats.
NAFTA is a complex issue that has created an integrated economy that simply cannot be turned off without damaging the U.S. economy. Contrary to the notion that México is unable to have a say in the NAFTA negotiations, the integrated economy of NAFTA threatens many of the Trump voters themselves and thus empowers the Mexicans to threaten U.S. livelihoods, most of which are Trump supporters, for better terms.
That is the dirty little secret that the Trump administration doesn’t want you to notice. Trump’s own voters will be economically damaged if Trump withdraws from NAFTA.
México is the second largest importer of U.S. corn, an industry worth over $2 billion to U.S. farmers. The farmers organized and sent a clear message to the Trump administration – rethink your attacks on NAFTA. In response to Trump’s NAFTA rhetoric, the Mexican government started a campaign of pointing out how damaging Trump’s NAFTA rhetoric was by going directly to those it would affect, state governments, like Texas, and industries like the farmers. This push-back campaign has resulted in Trump’s goal of substantially changing NAFTA or terminating it into a tempered negotiation where NAFTA will remain largely intact, albeit updated for today’s realities.
One negotiated benefit to México would be strengthening the origins rules, making NAFTA products contain more NAFTA country content. Strengthening this requirement would curtail Asian inroads to U.S. consumers through México thus increasing production within México resulting in an increase in Mexican consumer product manufacturing. Since Canada and U.S. labor costs are much higher, the displacement of Chinese products in the supply chain would result in Mexican workers making up the shortfall.
Besides the tariffs imposed on Canadian lumber, the Trump administration has substantially remained silent on trade issues with México, instead relying on the narrative that Trump was persuaded to hold off the termination of NAFTA, out of respect for Canada and México. But it appears that Trump has faced the reality that he cannot end NAFTA nor substantially renegotiate to the exclusive benefit of the United States without hurting his own supporters.
Whichever narrative the reader chooses to believe, the fact remains that Donald Trump has severely dialed back his threat to fundamentally change the NAFTA agreement and has, at least for now, removed his threat to withdraw from the trade agreement.
México, much to the chagrin of some readers, has much control over the future of NAFTA.