Who has leverage at the NAFTA table? Hint, it isn’t merely Donald Trump



From day one, President Donald Trump has imposed his will on talks to overhaul the North American Free Trade Agreement. But as his administration tries to seal the deal, it’s not clear he holds all the cards.

Trump’s repeated threats to drag out of the pact have kept Mexico and Canada on their heels. The president may still brandish the threat of withdrawal to push a deal over Congress.

Yet Canada does have a few leverage as it decides whether to join a tentative U.S. deal with Mexico. Meanwhile, any deal Trump signs then requires congressional approval, and the Democrats are favored to seize control of the House in November, making approval far from a foregone conclusion.

Here are three ways to think about the power dynamics in the NAFTA renegotiation:

Trump Has All the Leverage

Trump is the reason the negotiations are happening in the first place. He demanded a rewrite, and he set the tone with a series of proposals designed to reduce the U.S. trade deficit, especially the large shortfall with Mexico.

When talks stalled prior this year, the Trump administration employed a classic divide-and-conquer strategy, focusing on talks with Mexico and leaving Canada on the sidelines. The result was a preliminary deal with Mexico.

The U.S. is trying to convince Canada to join the party, keeping the three-way structure of NAFTA intact. But Trump has made clear he’ll sign a deal only with Mexico if necessary, and he has threatened tariffs on Canadian-made cars if it can’t strike a deal.

The clock is ticking: Trump has provided notice to Congress that he’ll sign a new trade deal with Mexico — and Canada “if it’s willing” — by the completion of November, and his officials have to present text of the agreement to U.S. lawmakers by the completion of this month.

No, Canada Does

Canada may be the David to the U.S. Goliath, but it has proven to be a tenacious negotiator in the past, and it’s standing its ground on NAFTA.

The U.S. stated it wished a deal by Aug. 31, so that outgoing Mexican President Enrique Pena Nieto can sign the agreement ahead of his successor, Andres Manuel Lopez Obrador, takes office Dec. 1, thus insulating the new president from the political risks of a new trade accord. But Trudeau called Trump’s bluff, and negotiations with Canada continue.

One key edge for Trudeau: the math on new auto rules may depend on Canada’s inclusion. The U.S.-Mexico proposal requires at least 40 per cent of cars in the trade zone be made by workers making US$16 per hour. Adding Canada’s relatively well-paid autoworkers would make it much easier to meet that threshold. Trump’s plan may be to lure auto plants to the U.S. from Canada. But for now, automakers and unions are pushing for Canada to be brought into the fold.

Lawmakers on Capitol Hill, including members of Trump’s own Republican Party, share that view, that puts pressure on Trump to strike a deal with Canada, stated Edward Alden, a elder fellow at the Council on Foreign Relations in Washington.

“The U.S. and Mexico have stated they will go it alone, but Congress has made it utterly clear that a U.S.-Mexico only deal is D.O.A on the Hill,” stated Alden.

Congress Has The Final Vote

U.S. Trade Representative Robert Lighthizer has signified optimism that the deal he’s negotiating can triumph extensive backing in Congress. Certainly, there are a few aspects of the new accord that Democrats can hail as a victory, including the first minimum-wage provision in a U.S. trade deal. Republicans can argue they saved NAFTA from the trash can of history.


But because of the legal hoops the administration has to jump through, it’s unlikely NAFTA 2.0 will be put to a vote until next year, when the political climate may be true different. Polls indicate the Democrats will take the House in the midterm elections in November. They will be looking to wound, not support, a president that their base abhors.

“The administration is flying a strange route, because it’s claiming to have Democrat backing without doing the coalition premises needed to get the votes,” stated Scott Miller, a elder adviser at the Center for Strategic and International Studies. “It’s not the Democrats’ agreement. It’s not their president. They may merely gleefully walk away.”

But What About Mexico?

Even though Mexico agreed to a new deal with the U.S., it’s still only a “preliminary agreement in principle,” and Mexico can easily walk away. Lopez Obrador has signalled that his administration will govern pragmatically, but he is still a maverick who campaigned from the organization and espoused left-leaning policies. If a new NAFTA turns into a political liability, he may be inclined to scuttle a deal.

With assistance from Shawn Donnan.

Bloomberg.com


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