Trump NAFTA threat mostly bluff
President can’t just withdraw from pact; ploy called harmful
WASHINGTON — As the United States, Canada and Mexico head for a second round of talks this weekend to renegotiate the North American Free Trade Agreement, President Donald Trump is ramping up his bluster about simply terminating the pact instead.
But many former trade negotiators and experts agree that the president’s threat to cancel NAFTA is essentially an empty one, more likely intended as a bargaining ploy.
For one thing, Trump lacks the legal authority to unilaterally end all U.S. obligations under the 23-year-old agreement with Canada and Mexico. Some of that power rests with Congress.
And even if the president moved for a withdrawal, he would almost certainly face legal challenges and come under enormous pressure because of domestic economic and political considerations. His base in rural America, in particular, would be slammed by a U.S. pullout.
“I don’t think it’s a credible threat,” said Warren Maruyama, a partner at the Washington law firm Hogan Lovells who worked on NAFTA and other trade issues in both Bush administrations. “Trump would do serious political damage and split the coalition that got him into the White House. While his win is often credited to anti-trade, blue-collar voters, he won just about every rural county, and Mexico is a huge market for America farm products.”
Under NAFTA, the U.S., Canada or Mexico could withdraw from the agreement by giving six months’ written notice — which Trump has not yet done.
But there is a separate U.S. act that put NAFTA into effect. This law states that only a few sections of the accord would cease to
apply upon withdrawal, and even then it’s unclear what the practical effects would be. Many provisions could be left in limbo and presumably would have to be repealed by Congress.
Much of the agreement — including key chapters on North American content requirements, access to government procurement, on investment and services trade — would not be invalidated merely by Trump’s action, according to legal scholars.
Canadian and Mexican officials were initially perturbed by Trump’s threats, but more recently seemed to be giving little credence to them.
“Trade negotiations often have moments of heated rhetoric,” said Adam Austen, a spokesman for Canada’s minister of foreign affairs.
Said Manuel Molano, an analyst at the Mexican Institute for Competitiveness think tank: “His rhetoric is so detached from what’s happening at the negotiating table. It’s a far-fetched threat.”
During a press conference Monday with Finland’s president, Sauli Niinisto, Trump all but acknowledged that his threats were a negotiating tactic.
“I believe that you will probably have to at least start the termination process before a fair deal can be arrived at, because it’s been a one-sided deal,” Trump said.
One of the realms within Trump’s congressionally authorized power is to dissolve NAFTA’s zero tariffs, which kicked in for most goods traded among the three nations when the agreement took effect in 1994.
But even if Trump took such action, tariff rates on thousands of items would then automatically revert to duties under the World Trade Organization, the international trading system in which all three nations, along with some 160 others, are members. And by those rules, the U.S. stands to lose more than Canada or Mexico if Trump were to walk away from NAFTA.
That is because American tariffs on imports average 3.5 percent, compared with 4.2 percent for Canada and 7.5 percent for Mexico, according to Chad Bown, a senior fellow at the Peterson Institute for International Economics. That means U.S.-made products crossing the border into Mexico, on average, would be hit with double the tariffs.
And in many ways, those figures understate what may actually happen. As a developing country, Mexico can charge significantly higher tariffs without breaking WTO rules — on average above 30 percent for more than 90 percent of U.S. imports, according to a recent paper by the Federal Reserve Bank of New York.