Is NAFTA dead?
Currencies fell on a report Canada is convinced President Trump will pull the plug soon.
- Canadian officials are convinced President Donald Trump is ready to announce a withdrawal from NAFTA, according to a Reuters report.
- The move would in theory strengthen the United States' negotiating position, but sources appear skeptical it would work.
- Trump was quoted saying "I want out" as progress on the deal slows, but Canada doubts Congress would approve a withdrawal from the trade deal.
We're only 11 days into 2018, but any hope the new year would bring smoother sailing in terms of trade has already dissipated.
In the first week, rumors emerged that the U.K. is looking to join the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) block, the U.S. began renegotiating its bilateral trade deal with Korea and the future of the NAFTA appears as uncertain as it was when Trump was first elected.
The question to ask now seems to be not if, but when, Trump will follow through on his promise to pull out from NAFTA. The Reuters report may not offer anything new in terms of Trump's intentions — it has always been clear the U.S. president is not fond of multilateral deals — but it sheds a significant light upon the talks' progress.
The weeks in between rounds of negotiations are designed as a time for each country to reconsider their priorities, and ideally, think of ways to compromise.
There was plenty to think of after the last round of negotiations, which took place more than a month ago in Mexico City and ended in a tense standoff as negotiators described a "lack of headway."
"Absent rebalancing, we will not reach a satisfactory result," United States Trade Representative Robert Lighthizer said at the time.
Round 6 of NAFTA negotiations would take place two full months later — from January 23 to 28 in Montreal — the longest gap between rounds to date. In the meantime, negotiators would travel to Washington, D.C., to help work through some of the issues, they said.
But speculation of a U.S. withdrawal from the deal does not bode well for progress made in the interim period. The rumors do not help anyone, either: CNBC reports the Mexican Peso and Canadian Dollar both tumbled on the news.
Fortunately, reports from both sides of the border indicate while Canada and Mexico take the threats seriously, they are not concerned a withdrawal would succeed. The countries seem confident the U.S. business community and Congress would help halt such a move. After all, analysts seem to agree disassembling decades of trade relations in 2018 would prove disastrous for the three countries.
"Withdrawing from NAFTA would be a grave mistake," U.S. Chamber of Commerce CEO Tom Donohue said in his 2018 State of American Business Address. "The American economy has taken several big steps forward with regulatory relief and tax reform, and the administration deserves lots of credit. But a wrong move on NAFTA would send us five steps back."
Still, all countries appear to be hedging their bets.
Canada's Globe and Mail reports economists are confident a U.S. exit from NAFTA would not spell doom for the northern country's economy.
Such a move would be "just the prelude to another negotiation," Michael Sabia of Caisse de Depot et Placement du Quebec, a pension fund, reportedly said at a panel in Montreal on Wednesday.
South of the U.S., as Mexico's presidential elections near, the country's elite appears to be reaching a political consensus trade — with or without the U.S. — is the pathway for growth. Even Mexico's populist candidate, Andres Manuel Lopez Obrador, appears to be softening his tone on NAFTA.
Both countries, meanwhile, are part of the new CPTPP negotiations, as they pursue new markets elsewhere.
As the three countries come down to the wire on their planned seven rounds of negotiations prior to both the U.S. midterms and the Mexican presidential elections, rhetorical tensions will likely continue to rise. All eyes will be looking for a breakthrough to be announced during the sixth round of negotiations.
But, as of now, hopes for a new deal appear slim.
- Reuters Exclusive: Canada increasingly convinced Trump will pull out of NAFTA
- Supply Chain Dive NAFTA round 5 saw 'lack of headway,' but plenty of blame to cast
- U.S. Chamber of Commerce 2018 State of American Business Address
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