Trump opts to renegotiate Nafta instead of exiting deal

US President Donald Trump says renegotiating Nafta is "very possible", but he threatened to scrap the pact if Canada, Mexico, and the US fail to reach a "fair deal for all".
Trucks queueing to enter the US at the Otay border crossing in Tijuana, Mexico, on Feb 2. US President Donald Trump said he would quickly start the process of reworking the trade pact despite campaign promises last year to pull out if he is unable to
Trucks queueing to enter the US at the Otay border crossing in Tijuana, Mexico, on Feb 2. US President Donald Trump said he would quickly start the process of reworking the trade pact despite campaign promises last year to pull out if he is unable to renegotiate it with better terms for the US.PHOTO: REUTERS

Move comes after phone calls to Mexican and Canadian leaders

WASHINGTON • President Donald Trump will not immediately terminate United States participation in the North American Free Trade Agreement (Nafta), the White House said, after he spoke with the leaders of Mexico and Canada about ways to renegotiate the accord.

The announcement came after reports in US media that Mr Trump and his advisers had been considering giving formal notice on a withdrawal from Nafta.

In what the White House described as "pleasant and productive" phone calls with President Enrique Pena Nieto of Mexico and Prime Minister Justin Trudeau of Canada, Mr Trump said he would quickly start the process of reworking the deal.

"It is my privilege to bring Nafta up to date through renegotiation," Mr Trump said in the White House statement. "I believe that the end result will make all three countries stronger and better."

 

Mr Trump's top advisers had been embroiled in a debate over how aggressively to proceed on reshaping US participation in Nafta, with hard-liners favouring a threatened withdrawal as soon as this week and others advocating for a more measured approach to reopening negotiations with Canada and Mexico.

  • Key facts about the trade pact

  • WHAT IS THE DEAL ABOUT?

    The North American Free Trade Agreement (Nafta) between the United States and its nearest neighbours, Canada and Mexico, took effect in 1994. With a combined market of 478 million people, it is one of the world's most important trade pacts.

    It eliminated almost all taxes on goods sent between the three countries, eased investment rules and allowed for more movement of workers between the countries. But some goods are exempted from the accord, such as softwood lumber and dairy products, the source of recent tension between Canada and the US.

    WHY IS TRUMP AGAINST IT?

    US President Donald Trump has called it the "worst trade deal in history" and blamed it for the loss of about five million manufacturing jobs since 1994.

    But a study by Ball State University in 2015 found that improvements in technology were mostly to blame, instead of trade with Mexico and China.

    WHAT IS ITS IMPACT?

    US trade with its Nafta partners has more than tripled since the agreement took effect, rising to US$1.1 trillion (S$1.5 trillion) last year. Canada, followed by Mexico, were the two biggest markets for US exports.

    But trade imbalances between Mexico and the US have also skyrocketed. Mexican exports to the US increased sevenfold between 1993 and 2016, but less than threefold to Canada.

    The US trade deficit with Mexico soared from a US$1.6 billion surplus on the eve of Nafta to a US$63 billion deficit last year, US government data shows.

    Canada's trade deficit with Mexico also widened to US$7.5 billion in 2016, according to Canadian government statistics.

  • AGENCE FRANCE-PRESSE, NYTIMES

Some of Mr Trump's advisers wanted a dramatic move before Mr Trump's 100th day in office tomorrow to fulfil a key campaign promise, while others said he could let the milestone pass and revisit the issue later through more formal procedures.

The dispute played out in the media, with several outlets saying Mr Trump would take the most dramatic available step - issuing an executive order declaring his intention to withdraw from the treaty.

Instead, Mr Trump has asked the two nations to open talks on ways to make the deal more balanced from the US perspective, which is allowed within the framework of the treaty. 

Exactly who in the White House sparred over the decision was not known but one of the most prominent anti-trade hard-liners is senior counsellor to the President Steve Bannon, and Mr Trump's decision is sure to be viewed as a defeat for Mr Bannon and his views.

During his election campaign last year, Mr Trump repeatedly vowed to pull out from the 23-year-old trade pact if he is unable to renegotiate it with better terms for America.

He has long accused Mexico of destroying US jobs. The US went from running a small trade surplus with Mexico in the early 1990s to a US$63 billion (S$88 billion) deficit last year.

Mr Trump has also recently ramped up his criticism of Canada. On Tuesday, his administration ordered tariffs on imports of Canadian softwood lumber in retaliation for what it said was unfair treatment of US dairy farmers.

Canada's dairy sector is protected by tariffs on imports and controls on domestic production as a way to support prices for the country's farmers.

The latest dairy trade row was triggered when Canada extended those policies to apply to ultrafiltered milk, a product used in cheese production and at the centre of a thriving US export business.

Talk of the potential withdrawal from Nafta earlier drove the Mexican and Canadian currencies lower. They halted their decline after the White House announcement.

BLOOMBERG, REUTERS, NYTIMES

A version of this article appeared in the print edition of The Straits Times on April 28, 2017, with the headline 'Trump opts to renegotiate Nafta instead of exiting deal'. Print Edition | Subscribe