What is Trump really up to with NAFTA?
WASHINGTON — First, Donald Trump threatened to rip up NAFTA. Then he didn’t. This week he did again. Now, he’s saying he won’t. But maybe, he says, he’ll change his mind again and rip it up if he can’t get a good deal. What’s going on? “A negotiating ploy,” said Gary Hufbauer of the Peterson Institute, a top U.S. expert on the North American Free Trade Agreement. “True to Trump’s style. The only surprise was the quick reversal [this week].” It’s not only Trump’s style. It’s basic negotiation theory. It involves the concept of negotiating clout stemming from the power to walk away. It belongs to whatever party least fears the WATNA — the acronym for Worst Alternative To A Negotiated Agreement. And right now, it seems, some people aren’t sweating the WATNA.
For starters, there’s the U.S. Congress. Trump needs Congress to move and it hasn’t. It’s not only slow-walking the appointment of a trade czar, but has yet to approve a notice that would allow negotiations to start in 90 days. And the clock is ticking. If there’s no deal by next April, the Mexicans warn it probably can’t happen next year because of their national election. Canada’s stance is wait-and-see.
Trade expert Laura Dawson explains the basic challenge for the U.S. president: He needs other parties to be worried. And their palms are not likely sweating over the idea that if NAFTA talks derail, the status quo continues and Trump’s big campaign promise to renegotiate crashes into oblivion.
“The alternative to a renegotiated NAFTA has been the status quo. And the status quo is not too bad [for them],” said Dawson, the head of the Canada Institute at Washington’s Wilson Center.
“Traditional negotiating theory says, ‘Well, if you make that alternative much worse, by going to no agreement at all, then you might put your opponent in a more precarious position.”’
Trump briefly moved in that direction this week.
Stories suddenly appeared in the Washington Post, Politico, CNN and the New York Times saying sources within the White House were seriously considering a draft executive order to cancel NAFTA. The stories alluded to divisions in the White House: trade-skeptical economist Peter Navarro was reportedly working on the order and faced resistance from the trade-friendlier elements in the West Wing.
The mere rumour of it happening had an impact.
It shaved almost two per cent off the Mexican peso and a third of a cent off the loonie. Congress expressed alarm. Business was up in arms. Barnyard squeals emanated from every imaginable sector of the agriculture industry: pork producers called the idea devastating, corn producers called it disastrous and the head of the U.S. grains lobby said he was shocked and distressed.
Within a day, Trump had withdrawn his finger from the trigger.
He insisted he’d been one or two days away from issuing a withdrawal notice, but had a change of heart during evening phone calls with the leaders of Canada and Mexico: “I like both of these gentlemen very much,” Trump said Thursday, recapping this week’s roller-coaster.
“I respect their countries very much. The relationship is very special. And I said, I will hold on the termination; let’s see if we can make it a fair deal.”
Aside from liking his peers, he acknowledged a more substantive reason for keeping his finger off the trigger: economic disruption. He called a NAFTA pullout a, “pretty big shock to the system,” and said renegotiation was easier than cancellation.
A room in Saskatchewan burst out laughing when a reporter read out the president’s statement in a question to Prime Minister Justin Trudeau. The laughter was prompted by the part about Trump not nuking NAFTA because he finds Trudeau and Mexico’s Enrique Pena Nieto such swell guys.
Trudeau said the president seriously raised the possibility.
“He expressed that, yes, he was very much thinking about cancelling,” Trudeau told reporters.
“We had a good conversation last night. [I told him] disruption like cancelling NAFTA would cause short- and medium-term pain for a lot of families.”
But even a president’s threats have their limits.
The NAFTA withdrawal process is complex. A declaration of withdrawal doesn’t automatically mean withdrawal. Under Article 2205, a president can order a pullout and then after six months can start executing it. At that point the administration, businesses, Congress and the courts would start tussling over what tariffs stay and which ones go.
A trade analyst said Trump needed to get back some of the leverage lost from basic realities of this negotiation — that he’s the only who needs to keep this promise on a new NAFTA and that the clock isn’t his friend. “Mr. Trump doesn’t have that much leverage — and Canada and Mexico know that,” said Patrick Leblond.