Nafta is dead, long live Nafta
The new deal has damaged US alliances with Mexico and Canada, and concessions have not been as big as previously sought
United States President Donald Trump asserted on Friday that the new North American Free Trade Agreement (Nafta) deal will see “cash and jobs pouring” into the United States. However, while the president has claimed the renegotiation is a “wonderful” win for his “America First” approach, the final concessions from Canada and Mexico are not as big as he had previously claimed possible.
To be sure, the deal contains some gains for the US, including a limited opening of Canada’s dairy markets, but Washington has also agreed to Ottawa’s request to preserve a trade dispute settlement mechanism while protecting Canada’s auto industry from potential further US tariffs. This underlines that there will be significant continuities between the new treaty and Nafta, which is one reason why the US president has asked that last week’s deal be rebranded as the United States-Mexico-Canada Agreement (USMCA).
Despite the fact that Trump has not delivered all that he had pledged, he will assert that the deal delivers on one of his key 2016 election promises. It is certainly true that he robustly challenged Mexico City and Ottawa through the process with a frequent war of words. The agreement will also give Trump renewed confidence that his agenda can continue to reshape the international political economy. This is especially so after his earlier decisions to withdraw US participation from deals like the Trans-Pacific Partnership; launch new trade sanctions against world powers from the European Union to China; and also threaten US withdrawal from the World Trade Organisation.
Trump’s negotiation strategy, of dividing Mexico and Canada, put intense pressure on Ottawa to make a deal after the bilateral agreement between the US and Mexico several weeks ago. This posed an acute dilemma for the administration of Prime Minister Justin Trudeau, given that Nafta underpins three quarters of exports that Canada sends south of the US border and 2.5 million jobs in the country depend on this trade.
However, the stakes in play were high not just for Canada, but also multilateralism. The reason why the end of Nafta — which today accounts for more than $1 trillion (Dh3.67 trillion) in annual trade — would have been so significant is that, upon signing in 1994, it was the most comprehensive trade agreement outside the EU. And it was also the first trade-major trilateral accord negotiated between a developing country (Mexico) and developed counterparts (United States and Canada).
Yet, despite having significant business support, Nafta’s standing had been eroded by criticism from both the US political Left and Right.
The goal for Trump, Trudeau and outgoing Mexican President Enrique Pena Nieto is to sign it before the latter is replaced on December 1 by populist Andres Manuel Lopez Obrador. It is feared in Washington that unless a deal can be signed before Lopez Obrador comes into office, he may throw a spanner into the works.
With the US midterm ballots next month, the White House also intends to try to get the trade legislation approved in the so-called ‘lame-duck’ session of Congress after the November 6 elections. Taken overall, the leaders of all three countries can plausibly claim a win after the USMCA breakthrough last week. Yet, despite Trump’s assertion that it is a huge success for his “America First” approach, his negotiating approach has done damage to alliances with Mexico and Canada, and concessions have not been as big as he had previously sought, highlighting the significant continuities the new deal has with Nafta.
■ Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.