Even as Washington was riveted by Supreme Court confirmation hearings, the Trump administration was quietly but furiously attempting to close on negotiations with Canada to join a post-NAFTA trade agreement with Mexico. Urgency arose due to a self-imposed midnight Sep. 30 deadline, which, if met, would allow the three national leaders to sign the agreement before Mexico’s new president, Andrés Manuel López Obrador, takes office on Dec. 1.
With some last minute heroics, a deal was struck with barely an hour and change to spare.
That’s critically important, because without Canada, North American supply chains roll up, Ottawa’s incentive to cooperate on everything from energy to infrastructure to security goes down, and the U.S. Congress would be far less likely to pass the new agreement.
Re-opening NAFTA was always fraught, given that doing so risked losing the agreement entirely. Indeed, it was precisely that outcome that moving forward with the Trans-Pacific Partnership – which would have updated NAFTA via alternate means – was meant to avoid. The view of the U.S. president and his senior trade and economic advisors is that the trade balance is an indicator of which nations are “winning” and which are “losing.” Reworking NAFTA to manage trade outcomes, particularly in the auto sector, has accordingly been a key driver of the U.S. negotiation approach. Mexico acquiesced, preferring a sub-optimal NAFTA to losing NAFTA altogether, amping up the pressure on Canada, as the White House predicted it would.
But Canada has generally been a harder nut to crack, and Prime Minister Justin Trudeau faces an election in 2019, unlike outgoing Mexican President Enrique Peña Nieto. Trudeau politically could not offer an agreement to Canadian voters if it stemmed from the perception that Ottawa was forced to accept a diktat from Washington. And, according to a leaked Bloomberg interview with Trump, that is exactly the approach that the United States was employing.
In the end, with a hard deadline staring both the United States and Canada in the face, and recognizing that an imperfect deal was far better than no deal, negotiators essentially said yes to a compromise that had long been on the table: greater U.S. access to Canada’s dairy market in exchange for U.S. acquiescence on Chapter 19 dispute resolution. The name of the agreement has also been changed, from NAFTA to the United States-Mexico-Canada Agreement, or USMCA, trade having fallen out of the title.
After all three parties sign the deal on Nov. 30, it will be up to the U.S. Congress to pass or reject the agreement that has been negotiated. The inclusion of Canada is massively important on this point, as Congress has said repeatedly on a bi-partisan basis that NAFTA without Canada is a non-starter. The scenario, though, could be further complicated after Nov. 6, depending on the results of the U.S. midterm elections. If, as many predict, the House of Representatives and perhaps also the Senate change from Republican to Democrat control, the desire to act on legislation that would give a victory to the Trump White House will likely decrease.
Meanwhile, the Trump administration is betting that the deal it struck will be so favorably received by organized labor that Democrats will support it. That’s debatable; so far, the AFL-CIO and other unions are reserving judgment. Provisions designed to pick up Democrat support are exactly those likely to soften Republican support.
Nobody really knows what happens next. One scenario, when all is said and done, would be a so-called zombie NAFTA agreement that remains in force for the indefinite future even as the process to replace it with the USMCA moves along in a desultory manner, given the many other priorities in Washington, particularly after the midterms, and the administration’s potentially eroding ability to advance its agenda. Under such circumstances, the president’s threat to pull the United States from NAFTA altogether could resurface.
One thing we can say for sure, however: If the agreement that has been struck is eventually passed, and this removes NAFTA as a political lightning rod and symbolic stand-in for all that ails economies in the global era, it will be a clear success, no matter the merit of this or that provision in the new text. Keeping a focus on the forest, rather than the trees, will serve observers well.
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Farnsworth is vice president of the Americas Soceity and Council of the Americas in Washington, DC.
