President Donald Trump, at an event in Phoenix, said that the USA will “end up probably terminating” the North American Free Trade Agreement with Canada and Mexico “at some point”.
Our previous worldwide trade brief outlined the Canadian government’s objectives for the North American Free Trade Agreement (NAFTA) renegotiations and what the implications are for Canadian businesses. In other words, this move would make it voluntary for the NAFTA countries to opt into the investor-state dispute settlement system (ISDS, which functions as an alternative to domestic court systems and lets corporations sue governments if they feel the value of their foreign investments have been diminished by governmental actions), meaning, more or less, that foreign investors would have to take any disputes through the USA court system.
The Trump administration has served notice that it’s dealing with the issue outside NAFTA. Trump’s top economic policy officials, Gary Cohn and Steve Mnuchin, don’t appear to particularly share the president’s views on trade policy, and Republican Party congressional leaders certainly don’t. Trump campaigned on a pledge to do away with NAFTA, which he blamed for the loss of USA manufacturing jobs.
“Automotive, I think is going to be, without a doubt, one of the most intensely negotiated things”, says Dan Ciuriak, fellow in residence at the C.D. Howe Institute and director and principal of Ciuriak Consulting Inc.in Ottawa. An old adage of Canadian political economy holds that “if the United States sneezes, Canada catches a cold” and while the trading relationship is important to both countries, it’s clearly more important to Canada.
Last week, Texas Comptroller Glen Hegar said in a radio interview: “The biggest loser in tearing up NAFTA and throwing it in the trash really would be Texas, because we are an export state”.
This week, U.S. President Trump said publicly, he’s not sure that the U.S. will get what it wants in a renegotiated deal and may just terminate the trade agreement.
Trump’s comments came ahead of the second round of NAFTA negotiations, which are scheduled to run from September 1-5 in Mexico City.
“What we’ve seen over this last week or so in financial markets has been a bit of wiggling around regarding the USA political situation”, said Paul Eitelman, multi-asset investment strategist at Russell Investments in Seattle. For the US, farm exports to Canada and Mexico soared from $8.9 billion in 1993, before NAFTA implementation, to $38.1 billion in 2016, according to AFBF.
As negotiators for the three countries signed onto the North American Free Trade Agreement sit down together, we worry.
Republicans in the US have already stated their intention to try and open the land up for drilling which environmentalists and Indigenous people believe would dramatically impact the herd.
It’s not the first time Trump has threatened to withdraw from NAFTA. “You have to wait a long time” for the process to play out, he said.
An global economic law professor and former State Department lawyer said he believes it would ultimately end up in court. “Exiting the agreement would be terribly destructive to the US economy”.
“I think we would look at those (potential changes) as improving on something that’s already quite good”, she said. They said they would like to build on the original agreement’s success by looking for ways to increase trade volumes. He also said he may shut down the government if he does not get funding to build a wall on the U.S. -Mexico border.