Trump’s NAFTA Showdown Likely to Be a Big Mess

Jorge Duenes/Reuters via ZUMA

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The Trump administration has already backed down considerably on its list of NAFTA demands. Gone are 40 percent tariffs and currency rules. Instead, as Michael Grunwald points out in a nice overview, the most recent draft letter contains some pretty familiar negotiating points:

The letter suggests that the overarching purpose of the renegotiations should merely be modernizing NAFTA to deal with issues that didn’t exist when it went into effect, and strengthening it to reflect the standards in more recent U.S. trade deals. “For example, digital trade was in its infancy in 1994,” the letter says. “Labor and environment were an afterthought to the Agreement.” The eight-page draft also cites intellectual property rights, state-owned enterprises, and trade in services as areas where NAFTA ought to be updated to reflect 21st-century realities.

Well, guess what? After years of intense negotiations, the Obama administration already finalized a deal in which Canada and Mexico accepted new protections for digital trade, tougher labor and environmental safeguards, stronger intellectual property rules, new limits on state-owned enterprises, and freer trade in services like law, consulting, accounting and wealth management where U.S. firms tend to excel. But that deal was the Trans-Pacific Partnership, the Asia-oriented trade agreement that Trump scuttled on his third day in office. Several former Obama aides pointed out that despite Trump’s attacks on TPP as an existential threat to the United States, much of his administration’s list of goals sounded like a rehash of TPP’s achievements.

The difference is that Obama was able to get these concession from Canada and Mexico because they wanted all the other benefits of TPP. Trump doesn’t have that to offer them, so it’s unclear what motivation they have to give him any of what he wants. Trump can threaten to leave NAFTA entirely, of course, but it’s an empty threat. Corporate America would go ballistic if he did it. The damage to supply chains alone would be catastrophic.

This is why multi-country deals are sometimes better for the US: it gives us more levers to get the things we want. In bilateral negotiations, we don’t always have that. Eventually, I suppose Trump will learn this lesson. Maybe.

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