Trump Serves Notice on Nafta: The U.S. Won't Accept a Touchup

  • USTR says trade agreement has failed for countless Americans
  • Mexico, Canada argue to preserve free-trade aspects of deal

U.S. Trade Representative Robert Lighthizer called for a major overhaul of the North American Free Trade Agreement as talks began on revamping the 23-year-old trade deal between the United States, Canada, and Mexico. Bloomberg's Kevin Cirilli reports on 'Bloomberg Markets.' (Source: Bloomberg)

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President Donald Trump doesn’t want a fresh coat of paint on the North American Free Trade Agreement. He wants to strip the house down to the studs.

That was the main takeaway on the first day of talks with Mexico and Canada to revise the 23-year-old accord. Some analysts had been expecting a modest revision of the accord to bring it in line with provisions included in the Trans-Pacific Partnership. While Trump withdrew from TPP in his first week in office, Commerce Secretary Wilbur Ross has indicated parts of TPP could form the starting point for a new Nafta.

U.S. Trade Representative Robert Lighthizer made clear Wednesday that Trump is seeking far more than a TPP clone. Instead, the administration will push to win back the jobs and manufacturing capacity the U.S. lost under Nafta. “For countless Americans, this agreement has failed,” said Lighthizer. “We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed.”

Lighthizer’s aggressive rhetoric contrasted with the tone of his Mexican and Canadian counterparts, who emphasized the gains to all sides of the original deal.

“Both Canada and Mexico were pretty accommodating, and the U.S. sent a shot across the bow about how significant and difficult these negotiations will be,” said Eric Farnsworth, vice president of the business group Council of the Americas.

Like any negotiations, trade talks involve posturing. Opening positions inevitably give way to compromise. Lighthizer, a veteran trade lawyer who honed his negotiating skills under Ronald Reagan, knows the importance of projecting strength.

Public Bravado

Sarah Goldfeder, a principal at government relations firm Earnscliffe Strategy Group in Ottawa and a former special assistant to U.S. Ambassadors to Canada, said it’s expected to hear bold statements from the governments before negotiations, but the conversations that really matter are behind closed doors.

“You should expect the bravado in public statements before negotiations begin,” said Goldfeder. “What we are not going to get a chance to hear is what is said around the table.”

But Lighthizer’s hawkish opening remarks on the first official day of talks raises the political stakes for all sides: Trump will be under pressure to sign a deal perceived as tough, while the Canadians and Mexicans will have to counter the perception that they’re being bullied by the world’s biggest economy. And that may scuttle the chances of a deal being completed by early 2018, as the U.S. and Mexico have said would be desirable. Sealing a deal will be challenging next year, with a general election scheduled in Mexico and a mid-term Congressional vote in the U.S.

Slogging Along

“If you’re really going to push for deficit reduction and discouraging American companies from investing in Mexico, those are both totally non-starters, so I don’t know how they work that out,” said David Gantz, who teaches trade law at the University of Arizona. “I see this thing as something that is going to just slog along. It certainly won’t be done by the end of December.”

Lighthizer’s opening act will likely be popular among labor unions in industries affected by the elimination of trade barriers across the continent. It may resonate with blue-collar workers in traditionally manufacturing-heavy states where job losses have been significant.

“He called it the way it is. There has been a migration of jobs from the United States and Canada to Mexico,” said Jerry Dias, president of Unifor, Canada’s biggest private-sector union. “They’re talking about having this done by the end of the year, but I find that very difficult to see. There won’t be a deal unless there are major changes.”

The academic consensus is that Nafta hasn’t been the “disaster” for U.S. workers that Trump has called it. While trade on the continent has surged, the impact on the U.S. job market wasn’t significant, though some industries and parts of the country were hit hard, according to a study by the U.S. International Trade Commission.

Trump has said he’ll walk away from Nafta if he doesn’t get the right deal. From the outset of talks, he’s placed the bar high for keeping the U.S. at the table.

— With assistance by Theophilos Argitis

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