Accompanied by fierce speculation, the fourth round of negotiations between the United States, Canada and Mexico about updating the North American Free Trade Agreement has started in Washington. Before it began, U.S. President Donald Trump met with Canadian Prime Minister Justin Trudeau at the White House.
Unlike other visits, this one was not followed by a joint press conference with the two leaders. In a remark made to journalists, Trump explicitly contemplated a breakdown of negotiations. Trump said, “It’s possible we won’t be able to reach a deal with one or the other, but in the meantime we’ll make a deal with one.” This would result in bilateral agreements with Mexico and Canada.
In the past, Trump has often called NAFTA “the worst trade deal” ever signed. Until now, American commentators have assumed that Trump's extreme rhetoric was meant to boost his bargaining power. Now the mood has changed. Many observers now believe that Trump is going to make demands which Mexico and Canada cannot accept and that he will thereby have an excuse to scrap NAFTA.
Former Republican Allies Are Rallying against Trump
At an event in Mexico City, the president of the U.S. Chamber of Commerce, Tom Donohue, warned that the Trump administration had put “several poison pill proposals” on the table which could blow up the entire deal. Donohue's harsh words are remarkable because the Chamber of Commerce usually is a reliable Republican ally.
Donohue reported that Trump's trade representative, Robert Lighthizer, had proposed a so-called sunset clause, a form of pre-arranged expiration date for NAFTA. Based on this, the agreement would automatically end after five years unless all three member countries agree to extend it. NAFTA would be burdened with a political risk that is too big for many cross-border investments.
Trump Received Unexpected Support from the Democrats
Apart from that, the Trump administration has questioned the NAFTA dispute settlement provisions, which are meant to settle disputes between governments and investors. Not unlike opponents of the Transatlantic Trade and Investment Partnership in Germany, Trump rejects such settlement provisions. Donohue considers these proposals "highly dangerous." He vowed that the Chamber of Commerce is "going to fight like hell" to defend NAFTA.
Trump, on the other hand, received support from the Democrats. Sherrod Brown, the Democratic senator from Ohio, claims that “any trade proposal that makes multinational corporations nervous is a good sign that it’s moving in the right direction for workers.”
NAFTA went into effect in 1994 under former President Bill Clinton’s leadership. Since then, trade volume among the three member countries has quadrupled, and in 2015 reached more than $1 trillion. Critics believe that because of NAFTA, too many jobs moved from the U.S. to Canada and Mexico, especially in the automobile industry, which after 1994 managed to establish new cross-border supply chains. On the other hand, thanks to NAFTA, U.S. agricultural exports have increased from $8.9 billion to $38.1 billion since 1993. That's why the American Farm Bureau Federation, an association that represents the interests of many Trump voters in rural America, is one of the most important supporters of NAFTA.
*Editor’s note: The Transatlantic Trade and Investment Partnership was a proposed trade agreement between the European Union and the United States, with the aim of promoting trade and multilateral economic growth.