Efforts to terminate the North American Free Trade Agreement (NAFTA) aren’t going very well for the Trump administration.
Talks between Mexico, the United States, and Canada stalled on Tuesday as trade negotiators clashed and exchanged barbs over steep U.S. demands. Both Mexico and Canada have indicated U.S. requests are too extreme, with Canadian Foreign Minister Chrystia Freeland accusing the United States of bringing a “winner-take-all mindset” to negotiations. U.S. Trade Representative Robert Lighthizer said by contrast that he was “surprised and disappointed by the resistance to change” displayed by his counterparts.
That back and forth isn’t going away. Plans for a December deadline have been scrapped, and negotiations are now likely to stretch through March 2018. But it’s unclear whether any of that will help officials reach a consensus.
Here’s why.
How we got here
All three North American countries entered into NAFTA in January 1994 with the aim of easing barriers to trade and investment across the region. The landmark agreement — which involved years of negotiations — took over a decade to reach its full effect and its impact on the North American economy is indisputable. Along with dispute resolution mechanisms and intellectual property protections, agriculture, textiles, and car manufacturing were all major components of the agreement, with environmental and labor safeguards agreed on the side. It also allows for all three countries to sell goods without imposing tariffs on one another.
Since NAFTA was introduced, trade between Canada, the United States, and Mexico has more than tripled. Mexico sends around 80 percent of its exports to its northern neighbor and a number of U.S. factories are housed in Mexico, which in turn churn out items for U.S. consumption. Canada and the United States see around $634 billion in two-way annual trade. Meanwhile, the United States and Canada respectively serve as Mexico’s top export destinations. Around $1.2 trillion in annual trade underpins NAFTA across the three economies.
NAFTA is above all a free trade agreement; it serves as a globalizing mechanism and one of the world’s major international trade deals. It’s also a source of extreme controversy across the political spectrum. Opponents argue that the agreement outsources jobs and takes advantage of cheap labor; supporters counter that NAFTA is critical to the economies of all three nations involved and an important intracontinental effort. Millions of jobs depend on the agreement — if NAFTA ends, so do those jobs, along with the revenue they generate.
Trump’s tenuous relationship with NAFTA
One of NAFTA’s biggest critics is President Trump, who has called it the “worst trade deal ever made” and has accused both Mexico and Canada of being “difficult” about revising the agreement. He has also vowed repeatedly to do away with the deal, something that has panicked U.S. business leaders and foreign officials. But that anxiety hasn’t really stopped Trump. In a meeting with Canadian Prime Minister Justin Trudeau last week, the president threatened again to scrap the deal if no compromise is reached.
“If we can’t make a deal, it’ll be terminated and that will be fine,” Trump reiterated. “They’re going to do well; we’re going to do well, but maybe that won’t be necessary. But it has to be fair to both countries.”
“Fair” is subjective. Trump has pushed an “America First” agenda since he entered office and he has little love for deals he sees as beneficial to anyone but the United States. Above all, Trump wants to reduce the U.S. trade deficit, an issue that has more to do with Mexico than Canada (the U.S.-Mexico deficit is around $59 billion, more than four times the U.S.-Canada deficit).
While most economists don’t believe the deficit is necessarily bad, Trump is convinced it is. Moreover, he thinks NAFTA has taken U.S. jobs. That’s a sticking point for the Trump administration — one that’s increasingly becoming a nightmare for Canada, Mexico, and U.S. business. The problem is pretty pervasive: White House documents leaked Tuesday night, initially circulated by a top Trump adviser, alleged, among other things, that a “weakened manufacturing base” leads to a spike in abortion rates, divorce, drug use, and death.
NAFTA is complicated for progressives
Trump’s desire to scrap NAFTA is a challenge for progressives, who have long voiced qualms with the deal. There’s good reason for those concerns — NAFTA’s emphasis on free trade in no way equates fair trade. Labor groups, environmentalists, and consumer advocates have all taken NAFTA to task for allowing businesses too much free-reign. Groups like the Service Employees International Union (SEIU) have argued that NAFTA has cost workers jobs, while the advocacy organization Public Citizen says the agreement is both ecologically detrimental and bad for public health.
But that criticism doesn’t mean progressives are excited about Trump’s desire to get rid of NAFTA altogether. More than 100 civil society groups critical of NAFTA met in May to discuss the renegotiation effort, later releasing a joint declaration opposing a Trump-led overhaul.
“The organizations and movements of civil society and indigenous communities reject not only the technical details of the current NAFTA and subsequent US-led trade agreements in the Americas, but also the belligerent, militaristic, xenophobic and misogynist positions of President Trump,” the statement read.
Some are trying to strike a compromise, calling for a re-working of the agreement. Organizations like the Sierra Club have issued recommendations for improving NAFTA, calling on officials to take low-income families and communities of color into consideration; they’ve also asked officials to actively counter climate change in any overhaul.
None of those suggestions are priorities for the White House and progressives know that.
“There’s good reason for skepticism that he’s going to prioritize working families’ voices and workers’ advocates, let alone environmental advocates, safety advocates and others over the corporate voices in his own cabinet and on K-street,” Arthur Stamoulis, a member of Citizens Trade Campaign, told The Nation.
That means progressives by and large oppose current U.S. efforts to overhaul NAFTA — even though many don’t like the agreement itself.
On NAFTA, it’s two against one
Among its aggressive demands, the United States wants a sunset clause on NAFTA, forcing the agreement to be renegotiated every five years. Redirecting the bulk of automobile manufacturing to the United States and easing the ability to impose import barriers on Canadian and Mexican goods are also a key request.
“Right now, it’s a great deal for the Mexicans and the Canadians, in my opinion. It’s a great deal for businesses that have decided they want to take advantage of the situation,” said Lighthizer. “Everybody has to give up a little bit of candy. That’s really what this is about.”
That’s a non-starter for Canada and Mexico, something negotiators from both countries have made clear.
“We have seen a series of unconventional proposals in critical areas that make our work much more challenging,” Canadian Foreign Minister Freeland said on Tuesday. “We have seen proposals that would turn back the clock on 23 years of predictability, openness, and collaboration. In some cases, these proposals run counter to World Trade Organization rules. This is troubling.”
Mexican Economy Secretary Ildefonso Guajardo was less blunt but noted that “a bad deal would be against the interest of Mexico itself, and therefore you have my guarantee that there will not be a bad deal.” He also praised the “good sense” approach of both his own country and Canada.
While Canada is also dependent on the United States, Mexico stands to lose the most if Trump leaves NAFTA. The bulk of Mexico’s economy is tied to its neighbor and the country has been on edge since renegotiation began; after the announcement that talks had been extended, the peso’s value immediately grew. But Canada also has good reason to stay in the deal: Canadian energy and lumber are both heavily reliant on U.S. investment and the country has every reason to want the deal to remain in place. That reality means Canada and Mexico are united against the nation dividing them — and that the United States is the odd one out.
Where do we go from here?
Neither Mexico nor Canada want NAFTA gone, but it’s unclear how many concessions they’re willing to make. They also have some other options should all else fail. Canada is the largest export market for U.S.-made goods and could hit the United States hard on imports. Mexico, meanwhile, could shift trade elsewhere — the country is currently eyeing ties with China, to say nothing of European and Latin American markets.
But a fourth party may be eager to replace the United States, relieving some of the stress on Mexico and Canada: Britain is reportedly considering joining NAFTA as it desperately looks to counter the trade loss stemming from slow-moving Brexit talks.
Canada and Mexico also have friends in the U.S. tech and cattle industries: the tech industry is lobbying heavily for the agreement to remain in place and powerful groups like the Texas Cattle Feeders Association are also invested.
The Trump administration is on a tight schedule. The International Trade Commission needs to analyze the deal and proposed demands, a process that could take half a year. Congress needs 90 days’ notice once that’s done, something that could be challenging, as both free and fair trade advocates are likely to give any new proposal extra scrutiny. Meanwhile, the U.S. economy hangs in the balance and stands to suffer tremendously if NAFTA goes away.
For now, the clock is ticking. The next round of talks will be held from November 17 to 21 in Mexico City, after which another round will be held in Canada in December. It’s anyone’s guess what will come of those negotiations.