Trump's NAFTA Makeover Not So Extreme
The Trump administration on Wednesday will start to renegotiate the North American Free Trade Agreement with Canada and Mexico. And despite very tough talk about NAFTA during the campaign, it appears the administration has backed away from a major assault on the decades-old trade deal.
And that is a relief to businesses in all three countries.
During the presidential campaign, Donald Trump clearly tapped into frustration about workers who had lost jobs in manufacturing. And he painted NAFTA as one of the central villains responsible for stealing Americans jobs.
"NAFTA was the worst deal ever made in the history of the world," he said. "It was a one-way highway out of the United States."
Upon taking office, President Trump followed through on his pledge to scuttle another trade deal — the Trans-Pacific Partnership. But by April, it was becoming clear that NAFTA would be different.
"I was going to terminate NAFTA as of 2 or 3 days from now," Trump said, but, he said, the president of Mexico and the prime minister of Canada "called me and they said, 'Rather than terminating NAFTA, could you please renegotiate?' "
A lot of U.S. manufactures, agricultural companies and other businesses don't want the president to throw out the agreement. Analysts say most U.S. industries support NAFTA because the deal has increased U.S. exports to Canada and Mexico.
And it appears the administration is hearing that message.
"I decided rather than terminating NAFTA — which would be a pretty big shock to the system — we will renegotiate," Trump said.
So what kinds of changes are on the table?
"We see the changes as departing from much of the rhetoric of the campaign," says Jaime Reusche, a vice president at Moody's who follows Mexico. "We see them as relatively modest."
He says the U.S. is looking to get tougher enforcement of environmental and labor regulations in Mexico.
There will also be an effort to update NAFTA with regard to all the information-age technologies and products and issues that didn't exist when NAFTA was created.
Also on the to-do list: changes to the dispute-resolution process involving the three countries.
But as far as making really big changes to NAFTA, Reusche says that to understand how hard that would be to do, just look at that little switch on your car door that makes the window open.
Those switches "start off as small components in Asia which are then imported and brought over to Colorado. In Colorado, they are made into a capacitor. The capacitor then goes over to Mexico," he says.
And he says the components cross back into the U.S. or Canada and back to the U.S. or Mexico again before finally being part of a finished car. So multiply that by thousands of products across a slew of industries — the root system that has been laid down is an immensely complex web of interconnected business relationships across both borders.
"Perhaps it's a parallel to the health care issue where they realized to actually be able to make significant changes that don't hurt anybody, it becomes very challenging to actually change," Reusche says.
Of course, regardless of what the administration's trade officials have said they want to do, it's not too much of a stretch to think that the president might make news with a tweet or statement that catches the negotiators on all sides off guard.
"Well, I guess the thing about a wild card is it can go in either direction," says Caroline Freund, with the Peterson Institute for International Economics. "So on the one hand if Trump insisted that Mexico pay for the wall as part of the NAFTA negotiations, that would derail the negotiations completely."
But she says on the other hand, the president might be able to nudge negotiators in a useful direction, too.
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