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Trump weighs canceling NAFTA to force hand of Democrats on trade

Trump weighs canceling NAFTA to force hand of Democrats on trade

President Trump and his advisers are weighing whether to cancel the North American Free Trade Agreement to force through his revised trade deal, a strong-arm tactic that would present Congress — and resistant Democrats — with the stark choice of assent or disarray.

Two administration sources who asked for anonymity to speak freely with the press said that the idea has been discussed within the White House but that they did not think that Trump has reached a final decision to withdraw from NAFTA.

“As crazy as it sounds, you’ve got to have some kind of catalyst to get things to move,” said one of the White House staffers, emphasizing that administration staff would prefer to negotiate over Trump's deal, the U.S.-Mexico-Canada Agreement or USMCA, without first removing the safety net of NAFTA.

Former senior administration officials and trade groups view Trump removing the U.S. from the nearly 25 year-old trade agreement early next year as an increasing likelihood.

“It could be that he withdraws [from NAFTA] before [USMCA ratification] even reaches Congress,” said Marc Short, former White House director of legislative affairs. “I think there’s a high probability of that, yes.”

The discussions about canceling NAFTA follow Trump's previous statement that he intends to do it. In extemporaneous remarks to reporters on Air Force One en route back from Argentina earlier this month, Trump said that NAFTA has "been a disaster for the United States" and that he would "get rid of it."

The logic of withdrawing from NAFTA before the USMCA would be to pressure Congress to approve Trump’s trade deal and any laws needed to comply with it. By formally withdrawing from NAFTA, Trump would set a hard deadline of six months for Congress to approve the USMCA or face having tariffs reintroduced on substantial portions of the approximately $1.3 trillion worth of trade between the U.S., Canada, and Mexico.

"Congress will have a choice of the USMCA or pre-NAFTA, which worked very well," Trump said.

Trump did not provide a specific timeline to reporters in that interview. White House sources were unsure of when exactly the administration would send specific bills and the USMCA itself to Congress. But White House officials view 2019 as the timeline to wrap the trade deal, fearing Democrats could drag it out otherwise once the presidential campaign officially starts in 2020.

Canceling NAFTA would set up a showdown similar in political dynamics to the current partial government shutdown, but with international supply chains for U.S. companies and the health of the stock markets in the balance. On the other hand, implementing USMCA would provide Trump a policy win that he could tout as fulfilling a promise he made on the campaign trail.

“We are very confident that Congress will approve USMCA,” said Emily Davis, a spokesperson for the U.S. Trade Representative, in a statement provided by the White House press office. “From the beginning, Ambassador Lighthizer has worked closely with Democrats and Republicans in the House and Senate on the renegotiation of this agreement.”

Trump may already feel he has the upper hand in the negotiation, and has shown a willingness in his shutdown fight to push the envelope to pursue his other major campaign objective, namely completing a wall between the U.S. and Mexico.

“Personally I could see the case for it because it puts it on the dual track for Congress to choose between USMCA ... or pre-NAFTA,” said Stephen Pavlick, a former deputy assistant secretary at the Trump Treasury Department. “I don’t think he sees the Democrats as having much leverage here. And candidly I think they see that too.”

“Do [Democrats] really want to be responsible for blowing up NAFTA?” Pavlick asked.

A NAFTA withdrawal could intensify already tricky politics for Democrats around the USMCA. A number of labor unions oppose free trade agreements, including NAFTA and the USMCA, for fear their members could be displaced by them. Though the USMCA closely follows much of NAFTA’s language, and includes language to increase pay for workers in Mexico, unions — and Democrats closely allied with organized labor — so far don’t see it as enough.

“It doesn’t satisfy anybody in the labor movement, it doesn’t satisfy any Democrats,” Sen. Sherrod Brown, D-Ohio, told the Washington Examiner. “We have told them for months that they have to have strong labor chapter enforcement and they didn’t.”

One risk for Trump, though, is that Democrats could call his bluff on NAFTA cancellation and refuse to back USMCA even in the absence of NAFTA on the grounds that Trump would own the political and economic fallout.

“I’m not pulling out of NAFTA. I can’t make that judgment,” said Brown, a potential 2020 presidential contender. “If the president’s going to throw a temper tantrum and pull out that’s on him.”

Reverting to the pre-NAFTA situation would damage the economy and the stock markets, imperiling Trump's goal of growth. A withdrawal from NAFTA without a replacement would restore tariffs that were eliminated in the 1990s, requiring major supply chain reorganizations from companies that have grown accustomed to freer cross-border commerce.

“Any attempt to revoke NAFTA without an operational USMCA would represent a whole new risk that would weigh on investor sentiment like concrete boots,” said Isaac Boltansky, director of policy research at Compass Point Research and Trading, in an email. “Investors are so fixated on the Federal Reserve, China, and economic growth that any strategy predicated on revoking NAFTA without its replacement in place would alarm markets and catalyze a whole new leg downward.”

 

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