The Uncertain Future of Trade

Kai Huang -
Posted on: January 20, 2018

“A Trump administration will renegotiate NAFTA, and if we don’t get the deal we want, we will terminate NAFTA and get a much better deal for our workers and our companies. 100 Percent.” These were the words spoken by Donald Trump at a rally, during his Presidential Campaign, and these are words that he appears to be standing by. NAFTA talks are about to begin in Montreal, where they will be held from January 21 to 29.

Initial talks within Trump’s inner circle were reported to have been divisive, but resulted in a document with a list of demands. These changes proposed focus entirely on an “America first” attitude. Points include reducing the U.S. trade deficit within NAFTA, scrapping certain NAFTA dispute-resolution panels, opening up Canada and Mexico to U.S. telecom companies and banks, and restrictions on Canadian or Mexican firms seeking U.S. government contracts.

More recently, during October of last year, more specific (and contentious) demands were set during the talks in Arlington. Notably, the U.S. wants to specify vehicles under NAFTA to be at least 85% North American content and 50% U.S. content, a major change from the current regulation that simply needs 62.5% North American content. This rule included an additional clause that exempted U.S. automakers from it. This is merely one of the examples that worried both the U.S. and the rest of the continent, a radical proposal pushed out with immense risk for every party involved.

In Canada, both the ruling party as well as the official opposition are unified in support of Canada’s position in NAFTA. Andrew Scheer, similarly to Trudeau, criticized the U.S. approach to the negotiations, and suggested that they would be better off looking at internal issues such as taxation, regulation, and technological change. Conservative MP’s are divided on certain aspects of NAFTA and many consider it imperfect, but urge for cautious decisions.

Mexico, on the other hand, is in a dangerous position. With the general election coming up in half a year and incumbent President Enrique Peña Nieto ineligible for another term, national politics and NAFTA have become intertwined. With additional comments from Trump that his promised border wall would be paid by Mexico weaved into the NAFTA discussion, the Mexican public is heavily disillusioned with the U.S. Political candidates in the country risk servere public backlash if any concessions to the U.S. are suggested.

Throughout most of the current talks, not much progress has been made. Most of the tough issues brought forward are still left as impasses. Many of the U.S. proposals have been described by Canada and Mexico to be non-starters entirely. On the other hand, many officials on the U.S. side are getting increasingly frustrated with the lack of counter-offers. While the Canadian government is still hoping for the best to come from the negotiations, Foreign Affairs Minister Freeland has stated that it is also prepared for the worst: the U.S. invoking Article 2205, withdrawing from the agreement entirely.