Why Renegotiating NAFTA Won’t Be as Easy as Trump Says

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Aug 16 2017

President Donald Trump was propelled to the Oval Office, in part, by his call for more protectionist trade policies.

So far, however, he’s taken only one substantial action: withdrawing from the Trans Pacific Partnership, a massive trade deal with 11 other Pacific nations that would have covered 40 percent of the world economy. He has also reopened negotiations on the North American Free Trade Agreement with Mexico and Canada, despite earlier threats to terminate the deal. Those talks are set to get underway Wednesday.

Related: Putting the Squeeze on China Could Turn Into a Trade Disaster for Trump

Trump has yet to make much progress on the bilateral trade deals he says he favors. He’s called for one with Great Britain, but London can’t enter into any agreement before it leaves the European Union. The White House has signaled it would be open to a trade deal with Europe, but Germany, the largest EU economy, has shown little interest. The president has also called for revisions of a five-year old trade deal with South Korea, but talks have yet to begin.

When it comes to China -- the country Trump promised to punish for the loss of American jobs – the White House has been in a holding pattern of sorts. Trump has ordered a series of reviews into China’s steel and aluminum industries, and on Monday ordered a review of the theft of intellectual property.

And as NAFTA talks get underway Wednesday, there are questions about what Trump can get done when it comes to trade. Major changes to the deal are opposed by the auto industry, whose supply chains snake across the Mexican border; the entire Texas congressional delegation; a substantial number of large corporations, which rely on cross-border businesses; and many American farmers.

“The success is that NAFTA eliminated tariffs on U.S. beef exports to Canada and Mexico and allowed us to create $1 billion export markets to both Canada and Mexico with zero duties,” National Cattlemen’s Beef Association President Craig Uden told the industry publication Drovers. “NAFTA has positioned the U.S. beef industry to capitalize on beef sales across North America and around the world.”   

Related: As the US Pulls Back, China Boosts Global Trade on a New Silk Road

A revised trade deal would have to make it through Congress, where these same business interest hold powerful sway. “Any efforts to modernize the deal must be done the right way and guided by a few key objectives,” U.S. Chamber of Commerce President Tom Donohue said in a speech earlier this year. “First and foremost, do no harm. We must not disrupt the $1.3 trillion in annual trade that crosses our borders.”

Democratic senators have indicated they would support a revised NAFTA deal only if it contained the following provisions: protections to stop outsourcing of American jobs; labor and environmental standards; elimination of rules that allow corporations to sue the U.S. government; and rules against currency manipulation.

On the Republican side, resistance to making major changes in NAFTA is led by Sen. John Cornyn, the majority whip from Texas, whose state benefits from cross-border commerce to the tune of $84 billion in exports to Mexico (2015 data). Mexico is the U.S.'s second-largest export market and third-largest overall trade partner. In 2015, $1.46 billion in goods moved across the border each day.

On the House side, 32 first-term Republicans, in a recent letter to U.S. Trade Representative Robert Lighthizer, called for NAFTA to be modernized, but carefully.

Related: Trump Says the Trade Deficit With Germany Is ‘Very Bad’ – but Is It?

"We recognize that a 23-year-old agreement needs updating, and commend your desire to make improvements and ensure strict enforcement," the lawmakers wrote. "We are also keenly aware of the potential for damage to U.S. farmers, businesses, manufacturers, service providers and workers if long-standing agreements are suddenly vacated.”

Canada and Mexico also have demands. Canadian officials have indicated that they want labor standards in the pact, as well as protections for indigenous groups and to stop discrimination based on gender identity. They also want dairy and poultry protections, rules against dumping, and the freer movement of workers across borders.

Mexican President Enrique Pena Nieto has that he would be willing to discuss NAFTA with Trump to “modernize” the treaty — but not renegotiate the existing deal.

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