NAFTA’s future uncertain under President Trump

Uncertainty over the future of the North American Free Trade Agreement (NAFTA) under President Donald Trump’s administration has proponents of free trade concerned that the two-decade-old trilateral trade agreement may be coming to an end –  or going back to the negotiation table – after the forty-fifth president took office earlier this month.

Trump, who made appealing to economically disenfranchised voters living in the American rust belt a cornerstone of his campaign, has publically and repeatedly stated his willingness to scrap or re-negotiate NAFTA upon assuming office. NAFTA is a trilateral free trade agreement between Canada, the United States and Mexico. Implemented Jan. 1, 1994, NAFTA eliminated obstacles to free trade and foreign investment by reducing tariffs and protecting intellectual property rights. Trump has called NAFTA a “disaster” and said in a 60 Minutes interview that he “will either renegotiate it or we will break it.” Both Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto have expressed a tentative willingness to re-negotiate NAFTA.

“It’s not clear whether that means he’s just going to tear it up, or if he is going to force renegotiation,” said Inger Weibust, a professor of international affairs at Carleton University who studies environmental side agreements within NAFTA. “Most of his wrath has been focused on Mexico, but because this is somebody who doesn’t really seem to have any sort of long-term strategy or core ideology, it’s possible Canada could be harmed either intentionally or unintentionally. We could end up just being collateral damage if he’s going around smashing all these agreements.”

NAFTA instituted preferential market access between North American industries, permitting lower tariffs and open borders to allow for free trade between the three nations.

Trump Slams NAFTA

“NAFTA was one of the worst things that ever happened to the manufacturing industry,” Trump said in a Sept. 2016 presidential debate. “You go to New England, you go to Ohio, Pennsylvania… and you will see devastation where manufacture is down 30, 40, sometimes 50 percent. NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.”

One of Trump’s main gripes with NAFTA is the agreement damaged manufacturing job growth in the United States in the 1990s, when then-President Bill Clinton negotiated and implemented the agreement. The Economic Policy Institute says the number of jobs in the United States dropped by nearly 900,000 from 1993 to 2002. The manufacturing sector was hit hardest, with 686,700 jobs lost. Critics pointed to NAFTA as the cause, but proponents of free trade say the simultaneous increase in Asia’s manufacturing industry had a major effect on American employment.

“What happened at the same time NAFTA was negotiated was that you had an enormous upswing in manufacturing production in Asia, and particularly in China,” said Weibust. “So you can’t look at this before-and-after NAFTA and see what happened to manufacturing and say that was driven by NAFTA. There are other trends in the background that are far more significant.”

NAFTA has been controversial since its inception, and that debate has spanned the last two decades. Prior to its ratification, Canadians were concerned that joining NAFTA would create an economic dependence on the United States. So intense was the debate that the federal election of 1988 turned into a one-issue election on the merits — or downfalls — of a free trade agreement with the United States. Many have argued that it is time to renegotiate and update the agreement since it took effect, and some saw the now-defunct Trans-Pacific Partnership as an attempt to override NAFTA.

“I have argued, and others have argued, that it’s long overdue to revise NAFA anyway,” said Ian Lee, the MBA Director at Carleton University’s school of business. “Now Donald Trump is kind of forcing our hand. I think what Trump is doing is trying to intimidate Mexico – principally Mexico but Canada too, to a lesser degree – to go along with changes to NAFTA … He’s softening us up. Through intimidation and bullying, yes, but it’s a tactic to then encourage us to come to the table.”

A Post-NAFTA World?

Trump has not outlined his plan for NAFTA, or a post-NAFTA economy.

“Donald Trump does not think things through,” said Weibust. “I think a lot of what he’s proposing is basically illegal. It’s either illegal or unconstitutional or against international law. He’s not a details kind of guy, so he has really not thought this through.”

NAFTA’s revocation clause requires a country exiting the treaty to give six months notice. In the absence of NAFTA, tariffs and other facets of international trade would have to be renegotiated.

The United States is Canada’s largest trading partner, and Lee sees few options for Canada if Trump pushes for re-negotiations.

“It is the most powerful country in the world, the largest economy on planet earth,” Lee said. “Mexico and Canada are vastly more dependent on the U.S. than the U.S. is dependent on Canada or Mexico. So they can aggregate and it won’t harm their economy significantly. Whereas it would harm us significantly, which is exactly why we’re going to agree, and Mexico is going to agree, to a re-negotiation of NAFTA if Donald Trump demands it. And I think he will.”