Trade Compliance

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Trump Reverses Course on Threat to Quit North American Free Trade Agreement

Posted April 27, 2017

Whether as a result of pressure from alarmed Republican lawmakers, anxious business groups and concerned farm sector lobbyists who were “shocked and distressed” over the news, or perhaps because of some other completely unknown reason, late yesterday President Trump almost immediately pulled back the threat he was reportedly considering to unilaterally “terminate” the North American Free Trade Agreement.

Earlier in the day, based on leaks from unnamed White House officials, media reports had quickly circulated indicating that an executive order drafted by two of Trump’s advisors known for their nationalist sentiments and highly unorthodox economic views was in the “final stages” of review and could be rolled out as early as this week.

In abrogating NAFTA, the order would have been the first time in more than 150 years that the United States has withdrawn from a trade agreement; a move that would almost certainly have caused enormous chaos within the complex, integrated supply chains that have been built up over the agreement’s 26-year history and negatively impact a wide range of American industries and companies that have developed major export interests in Canada and Mexico.

Fortunately, it was not to be – and most likely wasn’t truly earnest in the first place.

Early this morning, Trump tweeted: “I received calls from the President of Mexico and the Prime Minister of Canada asking to renegotiate NAFTA rather than terminate. I agreed.” Ten minutes later supplementing it with the caveat “subject to the fact that if we do not reach a fair deal for all, we will then terminate NAFTA. Relationships are good – deal very possible!”

A late-night readout from the White House (a source not exactly noted for its veracity these days) stated that following “pleasant and productive” conversations with Mexican President Peña Nieto and Prime Minister Trudeau, President Trump “agreed not to terminate NAFTA at this time,” adding that “the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries.”

In the statement, Trump is implausibly quoted as having said: “It is my privilege to bring NAFTA up to date through renegotiation. It is an honor to deal with both President Peña Nieto and Prime Minister Trudeau, and I believe that the end result will make all three countries stronger and better.”

Speaking earlier today at a farm event in Saskatchewan, Trudeau said he believed that Trump was “very much thinking about cancelling” and recounted his version of the call: “I highlighted quite frankly, that whether or not there was a better deal to come, there were an awful lot of jobs, an awful lot of industries right now that have been developed under the NAFTA context. And disruption like cancelling NAFTA, even if theoretically it eventually might lead to better outcomes, would cause a lot of short- and medium-term pain for a lot of families.”

President Peña Nieto also issued a brief statement saying that the presidents spoke about “the shared objective to modernize” the trade agreement.

Mexican Senator Armando Rios Piter though had a rather more colourful assessment of the situation, saying Trump “seems like he’s sitting at a poker table bluffing rather than making serious decisions,” observing that “in front of a bluffer, you always have to maintain a firm and dignified position.” An expert on Mexican-U.S. relations also quoted by the Toronto Star had an even more withering critique, describing Trump’s action as “a type of tantrum of a spoiled child who did not get the presents he expected for his birthday, for the 100 days.”

So why did Trump launch this incendiary trial balloon only to shoot it down the very same day?

According to some reports, Trump had considered “detonating the trade equivalent of a nuclear option” to “instill fear in members of Congress, industry and Canadian and Mexican trade negotiators.” Or expressed another way, the administration viewed it as “a dose of shock treatment for Congress, Canada, and Mexico to get cracking under the threat the deal might be cancelled.”

Perhaps so, but this dubious notion doesn’t actually square with the reality that by most accounts the White House itself – not lawmakers in Congress (despite having moved slowly to confirm Trump’s USTR nominee Robert Lighthizer) nor the other NAFTA partners, both of which have repeatedly expressed their eagerness to get moving quickly on the talks – is almost entirely to blame for any “foot dragging” when it comes to getting the formal renegotiation process underway. 

A far more likely explanation for yesterday’s whiplash inducing performance is arguably to be found in the overwhelmingly favorable reaction of the partisan right-wing media which caters to beliefs widely held by much of Trump’s core voter base of support.

In that incredibly biased and hyper-political space, Trump’s supposedly deft playing of the daily news cycle and relentless media manipulation is considered “simply amazing” and his crude brinksmanship, no matter how seemingly reckless it may be at times, is admiringly viewed as being a savvy negotiating tactic ripped straight from Art of the Deal, the iconic 1987 book credited to him.

According to one prominent blog evidently subscribing to this theory, the U.S. president in this instance was purportedly making “a grand demonstration of leverage” and waiting “for opponents to scramble in response.”