The Trump Administration last week took the first formal step towards renegotiating the North American Free Trade Agreement (NAFTA). By notifying Congress of his desire to open discussions with Canada and Mexico, President Trump exercised his fast-track trade authority to spur a quick start to renegotiating the treaty. Having repeatedly criticized NAFTA during his campaign, President Trump is keen to stick to his campaign pledge to work towards trade deals that are more fair to American companies and American workers.
Possible Updates to the Treaty
United States Trade Representative (USTR) Robert Lighthizer has stated that he hopes to make updates to the treaty, particularly in the fields of digital trade and the environment. When the treaty took effect in 1994, the Internet was still in its infancy, and developments in online commerce since then have probably outstripped some of the treaty’s provisions. Similarly, environmental issues have take on greater importance in the past two decades. Renegotiations on environmental concerns may likely hinge on concerns that Mexico has laxer environmental regulations, giving companies an unfair advantage versus American companies who have to comply with stringent EPA regulations.
Will the United States Pull Out of NAFTA?
President Trump had at one point threatened to pull out of NAFTA, and was on the verge of doing so earlier this month when he decided against it. However, just the threat of pulling out of NAFTA being on the table could be a powerful tool in the upcoming renegotiation talks. By holding that threat out in front of Canada and Mexico, it could give the USTR additional leverage in negotiations.
The United States is the destination for 81% of Mexico’s exports and 76% of Canada’s exports. Having the United States pull out of NAFTA could have a very harmful effect on both the Mexican and Canadian economies, so both countries will undoubtedly want to tread very carefully during the talks to avoid angering their most important trading partner.
Possible Pitfalls
The major concern with renegotiation of NAFTA would be that the talks might be hijacked by corporate interests who are more concerned with benefiting themselves than with doing what is best for all American businesses. President Trump has spoken repeatedly about how NAFTA is unfair to American businesses and workers and how it has decimated American manufacturing. But the effects of NAFTA have been more acutely felt by small- and medium-sized businesses than by large multinational corporations.
Multinational corporations have more resources they can use to influence negotiators, and not just the American negotiators. If large corporations are able to influence negotiators, the majority of the benefits of renegotiating the treaty may go to them, with workers and small businesses seeing little improvement. And if that corporate influence becomes too strong, the NAFTA talks may turn into a repeat of the Trans-Pacific Partnership talks, which President Trump withdrew from in January. In that case, there’s a good possibility that they might break down and lead to nowhere. Where the Trump Administration might go from there is anyone’s guess.