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If it’s “America First” with NAFTA, will Canada and Mexico come in last?

Suzanne Offerman  Customer Proposition, ONESOURCE Global Trade, Thought LeadershipThomson Reuters

Suzanne Offerman  Customer Proposition, ONESOURCE Global Trade, Thought LeadershipThomson Reuters

Canada, Mexico and the U.S. are meeting in Washington to revisit NAFTA. In the tumultuous age of Trump, is it time to read the trade agreement its last rites?

This week, representatives from the United States, Mexico and Canada began meetings in Washington to discuss the North American Free Trade Agreement. NAFTA has always been target for politicians, but U.S. President Donald Trump’s forceful “America First” approach creates a new sense (if nothing more) that it may actually change.

“America First”

While on his campaign trail, President Trump pledged to reinvigorate U.S. industries that have slackened, such as automobile manufacturing and coal mining. Although he never delved far into specifics, one of his proposed strategies for revitalizing U.S. industry was to “tear up” NAFTA, which he painted as favoring trade partners’ economies over that of the U.S.

Whether NAFTA is the silver bullet he’s looking for (to say nothing of whether certain U.S. industries are moribund beyond resuscitation), this “America First” outlook generated a groundswell of enthusiasm and protectionist fervor. Since Canada and Mexico both have large trade surpluses with the U.S., significantly altering the agreement could look like progress.

The First 100 Days

As I noted in an earlier post on President Trump’s First 100 Days, the president generally follows a three-step strategy with regard to matters of trade, as follows:

  1. Take an extreme approach that appears unreasonable;
  2. Move toward dialogue; and
  3. Compromise and negotiate a reasonable outcome.

It has been interesting to observe this method play out in the international trade context. While President Trump did follow through on his pledge to withdraw the U.S. from the Trans Pacific Partnership Agreement, his Administration seems willing to update NAFTA rather than eviscerate it, as he once promised to do.

For their parts, Mexico and Canada have expressed a willingness to “modernize” NAFTA.  That openness is probably due to the great boon NAFTA has been to their economies. Canada benefits greatly from open borders with the U.S., but Trump has allegedly said it is “no problem” with respect to trade (beyond lumber, which is on a “parallel” discussion track). On the other hand, Mexico has more to worry about. President Trump believes cheap labor in Mexico has siphoned jobs away from the U.S., and he’s made an aggressive stance toward Mexico a significant feature of his platform.

What to look for

When the three parties meet, President Trump will likely try to tighten NAFTA rules of origin in the interest of promoting U.S. manufacturing and jobs. He may try to accomplish this through limiting the amount of non-regional content that is permitted in complex manufactured goods and still considered NAFTA-eligible.

Trump will also likely revisit anti-dumping and countervailing duty laws. The administration may insist that NAFTA trade remedies cases are reviewed judicially like all others, particularly in light of President Trump’s executive order focusing on the “enhanced collection and enforcement of antidumping and countervailing duties and violations of trade and customs laws,” aimed to curtail unfair trade practices.

The key facet to pay attention to, though, may be whether President Trump’s trade bluster is truly tempered by the more “personal” one-on-one type discussions closed door negotiations usually bring when the U.S., Mexico and Canada actually do substantively negotiate, or whether the administration’s  seemingly hard-line approach and stormy rhetoric make the talks unproductive.

Once this round of talks concludes, the same three parties will meet again in Mexico City around Sept. 10.

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