As we have reported in previous issues of Driving Profits, President Trump has not been a big fan of NAFTA. Back during the campaign he has said, “It has destroyed this country,” and has alternatively said, as president, he would either “entirely renegotiate NAFTA” or he would “terminate it.”
However, more recently, the President has seemed to soften his thoughts on the long-standing trade agreement, and that could bode well for the auto industry. In April, as Trump neared his 100th day in office, after meeting with the leaders of Mexico and Canada, Trump said he, “Won’t immediately terminate” U.S. participation in the North American Free Trade Agreement, but favors renegotiation instead.
A statement released by the White House after the meetings with two leaders said, “Both conversations were pleasant and productive. President Trump agreed not to terminate NAFTA at this time and 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…”
Rather than declaring that the U.S. would withdraw completely from the treaty, as many expected he would, Trump instead asked his two counterparts, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto, to consider ways to make the current deal more balanced from the U.S. perspective, which is allowed under the parameters of the existing treaty.
“It is my privilege to bring NAFTA up to date through renegotiation,” Trump said in the White House statement. “I believe that the end result will make all three countries stronger and better.”
Some sources say they believe that Trump’s son-in-law, Jared Kushner, had a lot to do with his change of heart on terminating the deal. According to the Canadian Newspaper, The Globe and Mail, sources familiar with the matter told The Canadian Press that a well-timed call from Mr. Kushner to Katie Telford, Mr. Trudeau’s chief of staff, prompted Mr. Trudeau to call Mr. Trump, persuading him to spare NAFTA for now.
Trump has now officially given Congress notice that he seeks to renegotiate the treaty. Trump has also made it very clear that he still will pull out of the treaty, if the renegotiation fails. Speaking to reporters from the Oval Office soon after the release of the statement, Trump said that, he was going to wait on the ideas and appeals of the two leaders, but that, “If I’m unable to make a fair deal for the United States–meaning a fair deal for our workers and our companies, I will terminate NAFTA.”
Soon after the meetings, Trudeau said during a news conference that he told Trump withdrawing from NAFTA “could cost U.S. jobs.” He declined to offer any specifics on what Canada’s demands would be in the trade renegotiations.
Where Do We Stand Now?
U.S. trade with its NAFTA partners has more than tripled since the agreement took effect, in the 90s, rising to $1.1 trillion last year. Canada and Mexico are ranked as the two biggest markets for U.S. exports, taking in a combined 34 percent of the total in 2016, according to a February paper published by the Congressional Research Service.
Recently, on Canadian TV, Canadian International Trade Minister François-Philippe Champagne said “We are ready, we are prepared for Washington’s promised renegotiations of the North American free-trade agreement.”
A few days later, Mexican Foreign Minister Luis Videgaray, shared similar thoughts, saying that Mexico was also looking forward to NAFTA talks now that U.S. President Donald Trump’s Trade Representative, Robert Lighthizer, has been approved by Congress.
After Mr. Lighthizer’s confirmation, President Trump said in an interview with The Economist magazine “the clock starts ticking” on what he promises will be “massive” renegotiations of the trilateral trade deal.
On May 16th, CNBC reported that Lighthizer, along with Commerce Secretary Wilbur Ross were taking the first official steps to renegotiating NAFTA. The two began with closed door meetings with the Senate Finance Committee and the House Ways and Means Committee. The purpose of these meetings is to draft a “Letter of Intent” on how to proceed with the renegotiation of NAFTA. Once that Letter is delivered to Congress, a countdown clock of a 90-day period of consultation with Congress on NAFTA begins. These congressional discussions need to be completed before officially starting talks with our NAFTA partners.