National Post (National Edition)
Pullout effects if Trump says adios
A fever of speculation has broken out about whether Donald Trump might soon announce his intention to withdraw from NAFTA. Canada must be prepared for every eventuality, says Foreign Affairs Minister Chrystia Freeland ahead the next round of trade talks to be held in Montreal at the end of this month. Here’s a brief guide to what such a pullout announcement would likely mean. NAFTA SURVIVES
The agreement’s withdrawal clause is not an automatic-exit trigger. It isn’t like Brexit and the European Union’s Article 50. NAFTA’s Article 2205 requires six months’ notice before anyone can actually pull out.
LOONIE DROPS
Goldman Sachs projects a six-cent drop in the Canadian dollar if Trump announces a pullout, and a more dramatic effect on the peso. Mere speculation about a withdrawal in news reports this week caused a momentary dip. Currency markets can act as shock absorbers in the event of trade jolts, softening the impact of tariffs.
LAWSUIT WATCH
A debate is already raging within the American legal community about the constitutionality of a president pulling out of a trade agreement without an act of Congress. Some insist Trump has the authority; others disagree. What everyone does seem to agree on is the likelihood of lawsuits. Behind the confusion lies a few historical contradictions: A U.S. Constitution that gives the president power over international relations, but the Congress power over trade; court cases that uphold the president’s power over international agreements, versus others that say he can’t contradict established law. This area of law hasn’t been tested much — it’s pretty rare for a U.S. president to be more hostile to trade deals than Congress, which is traditionally more protectionist.
MEXICO PROBABLY WALKS
Insiders familiar with the Mexican negotiators’ strategy are adamant: they will leave the negotiating table if Trump triggers Article 2205. The Mexicans have said this publicly, and sources there have been even more explicit in private conversations.
CANADA PROBABLY STAYS
The Canadian government has been far cagier when asked what it would do next. But people familiar with its intentions say it would likely stay at the table and keep talking.
TRUMP’S NEXT DECISION
Does he choose to pause negotiations during elections in Mexico and the U.S., and resume talks after a new Mexican government is sworn in December? Stay at the table with whichever party chooses to keep talking? Turn the trilateral negotiation into a bilateral, if it’s only the U.S. and Canada? Or proceed to killing NAFTA after the six-month grace period?
ZOMBIE NAFTA
The countries keep trading without tariffs, dispute mechanisms keep working, cross-border companies can keep investing and hiring anywhere, but all with the knowledge the deal is halfdead and could be buried after six months. Without free trade, the countries could apply tariffs — they average 3.5 per cent for the U.S., 4.1 per cent in Canada, and seven per cent in Mexico.