US talks tough as NAFTA negotiations get under way
WASHINGTON (Reuters) – The United States on Wednesday laid down a tough line for modernizing the North American Free Trade Agreement, demanding major changes to the pact that would reduce US trade deficits with Mexico and Canada and increase US content for autos.
Speaking at the start of the talks in Washington, US Trade Representative Robert Lighthizer said NAFTA had “failed many, many Americans,” and US President Donald Trump was not interested in “a mere tweaking” of the 23-year-old pact.
“We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement,” Trump’s top trade adviser said in an opening statement.
Lighthizer said repeated US demands for increased regional and US content in autos produced in the region, the largest source of a $64 billion trade deficit with Mexico last year. He also said the US would insist on strong provisions governing labor and currency practices.
“We need to ensure that the huge trade deficits do not continue and we have balance and reciprocity,” Lighthizer said. “This should be periodically reviewed. The rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial US content.”
Canadian Foreign Minister and lead NAFTA negotiator Chrystia Freeland took a swipe at the US position on the need to shrink the US trade deficit.
“Canada does not view trade surpluses or deficits as a primary measure of whether a trading relationship works,” she said in her opening statement. “Nonetheless, it’s worth noting that our trade with the US is balanced and mutually beneficial.”
Mexican Economy Minister Ildefonso Guajardo said the aim of the talks should not be to tear up NAFTA but to forge a stronger deal.
“The issue is not tearing apart what has worked, but rather, how we make our agreement better,” he said. “For a deal to be successful, it has to work for all parties involved. Otherwise, it is not a deal.”
Analysts said the biggest uncertainty is whether a deal can pass Trump’s “America First” test.
Trump has blamed NAFTA for shuttering US factories and sending US jobs to low-wage Mexico, a point that Lighthizer also emphasized in his opening remarks. The test will be whether negotiators can prove that a new NAFTA agreement can alter that course.
The call from the US business community in the run-up to the talks has been “do no harm” amid concerns that a new agreement will unravel a complex North American network of manufacturing suppliers built around NAFTA.
Trump, who made trade a centerpiece of his presidential campaign as he promised to reinvigorate the manufacturing sector, pulled the US out of the Trans Pacific Partnership trade pact shortly after taking office in January.
But he has since backed off other trade threats, including declaring China a currency manipulator and tearing up NAFTA, which he regularly calls a disaster.
US-Canada-Mexico trade has quadrupled since NAFTA took effect in 1994, surpassing $1 trillion in 2015.
Robert Holleyman, a former deputy US trade representative during the Obama administration, said the “toughest nut to crack” in the talks will be whether changes meet Trump’s goal of reducing the trade deficit.
“We know where he wants to make changes to NAFTA,” he said. “Whether those changes lead up to something that actually reduces the trade deficit with Mexico is wholly unclear.”
NAFTA renegotiation will be a major test of Trump’s ability to meet his campaign promises to restore US manufacturing jobs. Although he has inherited a strong economy that has added 1.29 million jobs this year, his promises of an ambitious legislative agenda have been derailed by the failure of a healthcare bill and the lack of a detailed plan for tax reform.