Who has leverage at the NAFTA table? It’s not just Trump
Canada, Mexico and U..S. Congress all have cards in the game and could call his bluff
From day one, U.S. President Donald Trump has imposed his will on talks to overhaul the North American Free Trade Agreement. But as his administration tries to seal the deal, it’s not clear he holds all the cards.
His repeated threats to pull out have kept Mexico and Canada on their heels. Yet Canada has some leverage as it decides whether to join a tentative pact. Meanwhile, any agreement Trump signs requires congressional approval, and the Democrats are favoured to seize control of the House in November. Here are three ways to think about the power dynamics in the renegotiation. Trump has all the leverage Trump is the reason the negotiations are happening. He demanded a rewrite, and set the tone with a series of proposals designed to reduce the U.S. trade deficit, especially with Mexico.
When negotiations stalled earlier this year, the Trump administration employed a divide-and-conquer strategy, focusing on talks with Mexico and leaving Canada on the sidelines.
The result was a preliminary deal with Mexico.
The U.S. is trying to convince Canada to join to keep the three-way structure of NAFTA intact. But Trump has said he’ll sign a deal only with Mexico if necessary, and has threatened tariffs on Canadian- made cars if it can’t strike a deal.
Trump has given notice to Congress he’ll sign a new trade deal with Mexico — and Canada “if it’s willing” — by the end of November, and his officials have to present text of the agreement to U.S. lawmakers by the end of this month.
Canada may have calculated that Trump wouldn’t be able to withdraw from NAFTA, in part because of the support the pact has in the business community and Congress. But the Canadians underestimated Trump’s willingness to leave NAFTA, said Lori Wallach, Global Trade Watch director at Public Citizen.
“They are thinking their choice is between the existing deal or a deal that they are not very keen on. Whereas the reality is it’s a choice between a deal on new terms or nothing,” Wallach said. No, Canada does Canada is standing its ground on NAFTA. The U.S. said it wanted a deal by Aug. 31, so outgoing Mexican President Enrique Pena Nieto could sign the pact before his successor, Andres Manuel Lopez Obrador, takes office Dec. 1, thus insulating the new president from the political risks of a new trade ac- cord. But Trudeau called Trump’s bluff, and negotiations with Canada continue.
One key advantage for Trudeau: the math on new auto rules may depend on Canada’s inclusion. The U.S.-Mexico proposal requires at least 40 per cent of cars in the trade zone to be made by workers making $16 per hour or more. Adding Canada’s relatively well-paid autoworkers would make it much easier to meet that threshold. Congress has the final vote U.S. Trade Representative Robert Lighthizer is optimistic the deal he’s negotiating could win broad support in Congress. But it’s unlikely NAFTA 2.0 will be put to a vote until next year. Polls indicate the Democrats will take the House in the midterm elections in November. They will be looking to wound, not support, a president that their base abhors. But what about Mexico? Even though Mexico agreed to a new deal with the U.S., it’s a “preliminary agreement in principle,” and Mexico could easily walk away. Lopez Obrador has signalled that his administration will govern pragmatically, but he is a maverick who campaigned against the establishment. If a new NAFTA turns into a liability, he may be inclined to scuttle a deal.