Trade deals are at the heart of Donald Trump’s promise to Make America Great Again. He views global trade as a kind of Manhattan real estate market writ large, a vicious snake pit where the strong and hungry eat the weak and soft. From the moment he descended his golden escalator and launched his populist presidential campaign, he repeatedly complained that the world’s only superpower keeps getting eaten alive at the negotiating table, that ruthless foreigners gleefully rip off the hapless losers of the United States government, that it would take a cutthroat negotiator like him to fix stupid trade agreements and restore U.S. economic dominance. He wrote the book on the art of the deal, and he made a compelling case that he knew a bad one when he saw one.
Trump’s Exhibit A—“the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country”—was the North American Free Trade Agreement, the 23-year-old pact that knitted the U.S., Canada and Mexico into one of the world’s largest free-trade zones. Trump has called NAFTA a “total disaster,” and in early February, he vowed with typical bravado to cut a much better deal for American companies and workers. The president has been vague about what a better deal would entail, but he seems to assume that extracting concessions from Canada and especially Mexico will be a simple matter of using power and leverage to take what he wants, like raising the rent on tenants with nowhere else to go.
NAFTA may be the first test of whether Trump can recast America’s role in the world through sheer force of will. But renegotiating a deal that reshaped the commerce of a continent will be a lot harder than renegotiating an unfavorable lease. It will be an incredibly painstaking and frustrating task, an epic diplomatic and political challenge. It will require patience, sensitivity and attention to policy detail not usually associated with the Trump brand. And it might not work out in the end.
This isn’t just speculation. This is well-documented history. Because the Obama administration already renegotiated NAFTA.
There was never a formal announcement of “NAFTA Modernization Talks.” There were no presidential tweets mocking the original agreement. But behind the scenes, President Barack Obama’s negotiators spent more than three years haggling and battling to update and upgrade the 1994 deal, and they eventually got a lot of what they wanted. Canada reluctantly agreed to give American farmers modest but unprecedented access to its tightly protected dairy industry; Mexico grudgingly agreed to labor reforms with more bite than NAFTA’s toothless union protections. The new deal opened up service sectors like insurance, accounting and express delivery where the United States tends to excel, along with e-commerce and other digital industries that didn’t exist when NAFTA was born. The United States also secured new restrictions on government-owned businesses, new protections for intellectual property and new safeguards for the environment.
But none of those hard-won concessions are going into effect. That’s because the Obama team negotiated all of them as part of the Trans-Pacific Partnership, the 5,500-page Asia-oriented trade agreement among the three NAFTA nations and nine other Pacific Rim countries. TPP was at the heart of Obama’s strategic “pivot to Asia.” But Trump saw it as another fleecing of America, and with great fanfare he yanked the United States out of TPP during his first week in office, before Congress could even vote on whether the deal should take effect. That means its upgrades to NAFTA—regarding dairy, labor and everything else Mexico and Canada agreed to—are probably moot.
To Obama administration officials and other free-trade advocates, this feels like a gaping self-inflicted wound, a voluntary surrender of economic and geopolitical territory captured through countless hours of intense negotiations in drab conference rooms. When I asked Obama’s trade representative, Michael Froman, what his negotiating team had given up to Mexico and Canada in exchange for their TPP concessions to America, he replied: “Nothing!” Mexico and Canada were willing to play ball because TPP would give them better access to sell their products in Asian markets—and when Trump tries to renegotiate NAFTA, he won’t be able to offer that carrot now that he’s ditched TPP.
Then again, TPP was flatlining politically well before Trump pulled the plug: Bernie Sanders had campaigned against it with rhetoric similar to Trump’s, and Hillary Clinton, who had called it “the gold standard” as Obama’s secretary of state, flipped against it when she saw it becoming toxic in her Democratic primary against Sanders. Populists on the left and right hated TPP almost as viscerally as they hate NAFTA, denouncing both as victories for multinational corporations at the expense of ordinary families, attacking free trade in general as a scheme to move U.S. manufacturing jobs to lower-wage countries. They’re not impressed when Obama aides talk about how they upgraded NAFTA in TPP, because they don’t want an upgrade. They want a radical reversal of U.S. trade policy.
That’s what Trump says he wants, too. Free trade was a core Republican principle before his nationalist campaign, but he has repeatedly trashed multilateral deals like NAFTA and TPP as establishment efforts to appease foreign elites at the expense of hardworking Americans, a message that resonated with many blue-collar whites. Trump has also argued that America’s $500 billion trade deficit—a measure of how much more we buy from other countries than they buy from us—is a national disgrace, and he has pledged to wipe it out by striking harder bargains in one-on-one negotiations with America’s suppliers, starting with Mexico. (He recently said he wants only minor tweaks to NAFTA regarding Canada, which does not contribute to the U.S. trade deficit.) But it’s not clear precisely what Trump is looking for in a new approach, beyond winning and more winning, or how he intends to achieve it, beyond blustery threats of massive import taxes and trade wars. His own trade team has already sent out contradictory signals about what’s coming next; Treasury Secretary Steven Mnuchin has suggested the TPP commitments could be “a starting point” for renegotiating NAFTA, while key adviser Peter Navarro has laid out a Fortress America vision of trade that would blow up not only NAFTA and TPP but also the basic concept of global supply chains. The White House would not comment for this story.
When I asked Obama’s trade representative what his negotiating team had given up to Mexico and Canada in exchange for their TPP concessions to America, he replied: “Nothing!”
What is clear is that Trump won’t be able to snap his fingers and redesign NAFTA the way he might decide to redecorate a hotel. It’s complicated. Trade talks are multidimensional poker games involving hundreds of stakeholders, thousands of products, millions of jobs and the ever-present risk that an unpopular concession at the table can bring down the government of your negotiating partner. They hinge on arcane details like the difference between the “net-cost” and “build-down” approaches to calculating how much of a car has been manufactured in a free-trade zone. They get hung up on obscure disputes like a pitched TPP battle over whey, a dairy product associated primarily with Miss Muffet before Obama had to raise it in multiple discussions with foreign leaders. And in today’s hyperconnected global economy, unilateral bullying has its limits. Poor countries with weak militaries still get to influence outcomes.
Still, forward progress is possible. Obama’s team eventually did persuade Canada to phase out its barriers to American whey exports. And after multiple rounds of mostly dull, occasionally dramatic, round-the-clock negotiating sessions, the Americans secured a slew of other advances from NAFTA in TPP. But Trump threw all that three-yards-and-a-cloud-of-dust work into the dustbin of history, so the NAFTA in place today is the same NAFTA envisioned by Ronald Reagan, negotiated by George H.W. Bush and signed into law by Bill Clinton. Trump might want to revamp it or even walk away from it, but like Obamacare, NAFTA would be extremely disruptive to repeal and extremely difficult to replace. The best way to understand how Trump might struggle to renegotiate it is to understand how Obama already did.
***
The politics of trade deals like NAFTA have always been dicey. It’s hard to sell voters on the gradual benefits of smoother commerce throughout the economy while the headlines highlight the localized damage of every Rust Belt factory that shuts down and moves to Mexico. Modern presidents of both parties have pushed to reduce tariffs and other trade barriers as a matter of policy, but there have always been vocal critics of free trade in the Democratic Party, and even free-trade Democrats have tried to emphasize their concern for the victims of globalization. Obama straddled that line during his 2008 campaign. He repeatedly denounced NAFTA’s lax protections for workers and the environment, which had been buried in unenforceable side agreements and subsequently ignored. But he also endured a mini-scandal when it leaked that one of his aides had privately assured Canadian officials that Obama was a free trader at heart—and was just attacking NAFTA to play populist politics in the Democratic primary.
Obama really is a free trader at heart, and he saw TPP—the largest regional free-trade deal in history—as a key to his economic and foreign policy legacy. But he also believed what he had said about NAFTA’s shortcomings, and he was determined to make sure TPP’s labor and environmental safeguards would be stronger, binding and central to the deal, with violations punishable by retaliatory tariffs. When Mexico and Canada began sounding out his administration about joining TPP, Obama recognized that the broader negotiations could be, as he later put it, “our only real shot at bringing NAFTA up to code.”
Labor was the big sticking point for Mexico, because labor abuses are among the reasons it’s cheaper to run a factory there. Company-dominated unions tend to sign company-friendly labor contracts that workers never even see; independent organizers often get beaten up or fired; and corrupt arbitration boards have been rubber stamps for the status quo. But Obama’s aides warned Mexican diplomats that they would have to commit to pass domestic reforms respecting collective bargaining, freedom of association and other internationally recognized labor rights if they wanted in on TPP. At the same time, they would have to accept binding new rules on environmental abuses like wildlife trafficking and overfishing. The U.S. position wasn’t motivated solely by a noble desire to protect union organizers and save the earth; America already had strict labor and environmental laws, so any upgrades in TPP would help level the playing field for the United States. It was an opportunity, as Obama later explained, to “fix a lot of what was wrong with NAFTA in the first place.”
Similarly, in the original NAFTA talks, Canada had refused to even consider opening up its heavily protected dairy, poultry and egg markets to U.S. competition. But when Canada inquired about TPP, Obama and his aides insisted that everything had to be on the table. That included Mexico’s limits on foreign participation in its energy services sector, Canada’s cultural laws limiting American TV programming, and the weak protections for drug patents, copyrights, software and other intellectual property in both countries. The consistent U.S. message was: No more sacred cows.
“Those were very, very sensitive discussions,” says Wendy Cutler, who was Froman’s deputy at the time. “We didn’t have a lot to offer them, and we were telling them from the start they’d have to do considerably more than they did in NAFTA.”
When Canada inquired about TPP, Obama and his aides insisted that everything had to be on the table. The consistent U.S. message was: No more sacred cows.
Mexico and Canada weren’t happy about that. But they saw the TPP train leaving the station, and they were worried about their largest trading partner getting on it without them. For better or for worse, NAFTA had helped tie North America together, nearly quadrupling trade among the three nations over two decades, creating seamless continental supply chains where auto parts routinely bounced back and forth across borders before being assembled into truly North American cars. Mexico and Canada didn’t want the United States to shift production and focus to new Asian supply chains. And while they already had access to U.S. markets, they didn’t want to miss a unique opportunity to increase their exports to the Pacific Rim.
So on the eve of a G-20 summit in Los Cabos, Mexico, in June 2012, Mexico agreed to join the TPP negotiations. Froman notified Canadian trade officials just as Prime Minister Stephen Harper was boarding his plane to the summit, but they said they weren’t ready to follow suit. Froman said he understood but warned that Mexican President Felipe Calderón would make a splashy commitment to TPP in Los Cabos. As soon as Harper landed, the Canadians called back and said they were ready to join as well. TPP felt like the next big platform, and they didn’t want to be left out.
“It’s hard to put a dollar value on that desire to be part of the club, but it’s real and it’s important,” Froman says.
***
This is the geopolitical rationale for free trade, the idea that reducing barriers to commerce can create bonds of community beyond economics. NAFTA defenders credit the pact with pushing Mexico toward closer ties with the United States, in sharp contrast to inward-facing, Yankee-hating Latin American nations like Venezuela. They argue that as Mexico’s fortunes have become more intertwined with America’s, it has become more willing to help stop drugs and undocumented migrants from reaching the United States. In the same vein, the Obama team pitched TPP as a way to solidify U.S. ties to Asia, while preventing China from dominating the continent and writing its economic rules—in other words, as a way to extend U.S. power across the globe.
Of course, the main case for breaking down trade barriers is economic, the idea that even though deals like NAFTA and TPP always create winners and losers, more open competition across borders creates more winners in the long run. Nations will export the products they make best and import products others make better, while consumers and retailers will enjoy lower prices. Protectionism can be tempting, but America’s notorious Smoot-Hawley tariffs helped spark the Great Depression; free traders argue that a nation that tries to protect its domestic steel industry with price-boosting barriers to competition will inevitably hurt its carmakers and other industries that use steel, as well as its consumers who buy products made out of steel. And foreign countries might retaliate with their own tariffs on American wheat or electronics, creating a whole new round of pain.
The flip side is that change is painful. There’s no doubt that free trade helps companies outsource production to countries where it’s cheaper; that’s part of why it brings down costs for consumers. NAFTA critics cite the “giant sucking sound” of U.S. manufacturing jobs—800,000 of them, according to one trade economist—that have relocated to Mexico, where wages are much lower and environmental rules much less stringent. It’s hard to quantify how many of those jobs would have been doomed anyway by global competition or automation without NAFTA, or how many of the 5 million or so U.S. jobs that now depend on trade with Mexico would have been created without the deal. U.S. manufacturing output is now at an all-time high, the U.S. economy has actually added 800,000 manufacturing jobs since 2010, and Canada and Mexico are our largest trading partners except for China. But we haven’t done much to compensate American workers whose jobs have been displaced by global competition, and our trade deficit with Mexico has climbed to $50 billion, which is less than one-third of 1 percent of U.S. GDP, but still helps explain why outsourcing has become such a dirty word.
For liberal activists who had correctly predicted that NAFTA would drain factory jobs to Mexico without significantly boosting wages on either side of the border, it was dispiriting to see a Democratic president so eager to repeat history with TPP. Even after Mexico committed to enact reforms protecting democratic union representation and revamping its company-stooge arbitration system, the activists warned Froman that the new labor safeguards were barely more binding than the empty promises in NAFTA. They were especially furious when Mexican negotiators managed to fight off some of the restrictions that TPP imposed to ensure labor progress in Vietnam and Malaysia. And they say Froman ignored their demands for tough rules against currency manipulation and reforms of the trade system’s corporate-friendly process for resolving disputes.
“NAFTA was a total failure,” says Lori Wallach, director of Public Citizen’s Global Trade Watch. “Why would anyone want to double down on a failure?”
NAFTA was a total failure,” says Lori Wallach, director of Public Citizen’s Global Trade Watch. “Why would anyone want to double down on a failure?”
Obama didn’t see NAFTA as a failure, just flawed, and he thought the United States could use TPP to fill in its gaps. For example, NAFTA focused on manufacturing and agriculture rather than service industries, which employ 4 of every 5 American workers. So the United States led the push for TPP to knock down trade barriers in 168 service sectors, many of them knowledge-based industries like information technology, wealth management, consulting, law and design. The United States already runs a trade surplus in services, even with Mexico, despite all kinds of bureaucratic obstacles that make it costly for companies like FedEx, Bechtel, MetLife or Ernst & Young to serve clients abroad, like rules requiring foreign firms to set up local offices, partner with local investors or use local data servers. Gary Hufbauer, an expert at the trade-friendly Peterson Institute for International Economics, cites studies finding that Mexico’s regulatory barriers amount to a 56 percent tax on communications services, a 53 percent tax on financial services and the world’s most restrictive climate for legal services. Overall, he says, the United States had far more to gain from TPP’s trade liberalization for services than its NAFTA partners.
That was true for much of TPP. Its chapter on e-commerce and digital trade enshrined internet protections vital not only to U.S. companies like Amazon and eBay, but also to the free flow of data and information the United States hopes to promote around the world. The deal also restricted government subsidies and other preferences for state-owned enterprises, a much bigger problem for Mexico than the United States. And for all its rhetoric about the evils of protectionism, the Obama team made only minimal concessions toward openness for America’s five heavily protected industries—sugar, dairy, textiles, footwear and trucks. Some of its negotiating partners howled when it secured a 30-year phase-out for its truck tariffs, the longest delay in TPP.
“The U.S. negotiators were incredibly stingy,” says Jeffrey Schott, another Peterson Institute trade specialist. “People make it sound like they gave away the store, but that does not reflect reality at all.”
Even some TPP critics acknowledge that the deal marked an improvement over NAFTA for labor and the environment, though they complain bitterly that the improvement was wildly insufficient. The result has been a dysfunctional dynamic between Froman and progressives, with Froman accusing union leaders and other critics of unquenchable ingratitude, while the critics accuse Froman of wanting them to shut up and be happy with crumbs. Froman griped that the left was making unrealistic demands about a give-and-take process, while the left griped that Froman was more attentive to corporate interests than to the Democratic base. The activists who warned the Obama team that TPP’s labor safeguards would be ignored do not seem prescient so far; the Mexican government has forged ahead with the constitutional reforms it promised. But the activists who warned the Obama team that it was misreading the politics of TPP and overestimating public tolerance for free trade look very prescient.
The politics of trade haunted Democrats in 2016. Trump figured out a way to tie their traditional themes about families getting left behind to his campaign of cultural resentment, nationalism and suspicion of foreigners. It’s hard to know how much Obama’s push for TPP eroded confidence that the Democratic Party cares about working people, but it certainly didn’t boost that confidence in key Rust Belt states. And U.S. labor leaders resented the way the Obama team seemed to treat them like insolent brats who didn’t appreciate how hard Daddy was working to put food on their plates.
“We kept telling them: You’re supposed to be Democrats! Why won’t you listen to us?” says Thea Lee, the deputy chief of staff at the AFL-CIO. “But they thought they knew best. And here we are.”
***
The best illustration of the disappointment of Democratic constituencies—and also of the fraying tightrope the Obama team was trying to walk—was the debate over TPP’s “rules of origin” for cars—the unimaginably complex system that determines how much of a car has to be made in TPP countries to avoid customs duties and tariffs within the TPP region. It was such a contentious issue that Mexico and Canada almost blew up the entire 12-nation deal to protect their home automotive industries. It was also one of the few issues where Obama’s negotiators got significantly less than they wanted.
NAFTA had a 62.5 percent rule of origin, which meant that a Ford F-150 or even a Toyota Corolla could qualify as a duty-free NAFTA car if most of the content on an official list of parts was manufactured in the three NAFTA countries. The goal was to make the rules tough enough to force automakers to rely mostly on North American factories rather than Chinese suppliers, but not so tough that the final products would be too expensive to compete in a global market. It basically worked, helping to create an almost seamless North American supply chain and record sales for the Big Three automakers. But as modern cars have evolved, becoming less mechanical and more like computers on wheels, NAFTA’s list of parts has become outdated; the Obama team estimated that these days the actual content of the average NAFTA car is just over 50 percent North American-made, and that number is dropping fast. Suppliers also find NAFTA’s “tracing” rules so paperwork-intensive that they sometimes pay duties rather than try to track down the origin of every screw or bolt in a particular engine or steering column.
Everyone knew this would be a rough fight in TPP. Mexico and Canada wanted rules of origin even higher than 62.5 percent, to make sure automakers would keep relying on their factories, while Japan wanted to slash the requirement to just 30 percent, so its automakers could continue to rely on parts from China and Thailand. In America, car companies wanted lower rules to maximize their flexibility, while unions wanted higher rules to protect American manufacturing jobs. At first, the United States proposed rules similar to NAFTA’s, but Japan flatly refused to even discuss them, insisting it was absurd to expect Japanese automakers to meet much higher standards in its home markets if they would still face hefty tariffs in the United States. And Obama’s negotiators say U.S. automakers and unions had all urged them to make their top priority maintaining U.S. tariffs against Japanese cars and trucks for as long as possible, a priority they had achieved in a big way.
This all came to a boil in Maui in July 2015, at what was supposed to be the final round of TPP talks. The negotiators were stuck in khaki-walled conference rooms at the Westin Resort and Spa, and they were all frustrated the deal wasn’t wrapping up. Every now and then, the sound of protesters outside blowing conch shells or the sight of a child in a bathing suit on the elevator would remind them that they were just a few paces from a breathtaking beach. But they weren’t getting to enjoy it, and tempers flared during a late-night session on rules of origin when the United States took Japan’s side. Canada’s negotiators were angry. Mexico’s were enraged. “Let’s just say it got heated,” Cutler recalls. Froman was chairing the meeting, and he kept calling for order, but Mexican officials kept yelling that the United States was selling out its neighbors to cut a greedy deal with Japan. The talks broke down, and headlines around the world blared that TPP had stalled.
The drama eventually faded. Cutler led a series of highly technical meetings of deputy ministers from the NAFTA nations plus Japan in Washington, San Francisco and then the final TPP round in Atlanta in October. The group gradually hashed out rules of origin for 150 separate auto parts as well as finished cars, striking an elaborate Jenga-style compromise of 45 percent (under the byzantine “net-cost” methodology) or 55 percent (under the “build-down” approach) that no countries loved but all accepted. Outraged labor leaders called the new rules a giant step backward, while the Obama team claimed they were basically as strong as NAFTA’s, since they would measure actual content rather than an arbitrary list of parts from a bygone moment in car manufacturing. Ultimately, it didn’t really matter. Now that Trump has ditched TPP, the NAFTA regime remains in place.
At his Senate hearing, Trump’s pick for commerce secretary, Wilbur Ross, suggested that the administration wants to strengthen rules of origin for all manufactured goods in NAFTA. That would presumably boost production in North America and reduce Chinese imports. But it’s not clear why the additional jobs would go to the United States rather than cheaper factories in Mexico. Perhaps Trump’s proposed new taxes on Mexican imports could tip the scales. But many congressional Republicans oppose them, and they sound a lot like tariffs that could violate NAFTA and World Trade Organization rules. There’s also speculation that Trump will demand that the new rules include a large percentage of specifically American-made content. But why would Mexican President Enrique Peña Nieto agree to that? Or to put it another way: How huge a landslide would carry Peña Nieto out of office if he did agree to that? Former President Calderón recently suggested that if Trump insists on renegotiating NAFTA, Mexico should demand a renegotiation of U.S.-Mexico cooperation on immigration, drug interdiction and national security, as well. His point was that Mexico has sovereignty, too.
It’s hard to know how much Obama’s push for TPP eroded confidence that the Democratic Party cares about working people, but it certainly didn’t boost that confidence.
Kenneth Smith Ramos, the director of trade at Mexico’s embassy in Washington, says his government is open to discussing improvements to NAFTA with the United States. But he made it clear in an interview that Mexico considers NAFTA a huge success for both countries and will resist any push for new tariffs or other trade barriers. Mexico, he pointed out, is now America’s top export market for electronic circuits and buys about 25 percent of America’s corn exports.
“We’re willing to have a complete dialogue about the U.S.-Mexican relationship,” he says. “But we shouldn’t backtrack.”
At a rally in Iowa this past September, as Trump was trashing NAFTA and TPP, I watched him make a telling remark about the pitiful quality of U.S. trade negotiators. “It’s almost like … they want these other countries to do so well!” he marveled. That’s true. They believe that when Mexico does well, for example, more of its citizens can afford to buy American goods, and fewer of them try to sneak across the border in search of better jobs. Trade deals are always supposed to create benefits for everyone involved, and while negotiators always pursue their national interests, they don’t gain anything from lopsided deals that fall apart because their counterparts can’t defend them politically at home. It’s a delicate balance, with spoken and unspoken sensitivities, which is one reason the negotiations take so long.
By contrast, Trump seems to have a zero-sum view of trade, of deals, maybe of life, where anything good for the guy on the other side of the table is bad for the sucker who gave it to him. He believes in winners and losers, and his idea of a “win-win” is a deal where he wins twice. As a real estate developer, he was known for controversial deals that left him with a windfall, counterparties and contractors holding the bag, and lawyers sorting out the aftermath for years. That combative alpha-male approach obviously served Trump well in business, and it has worked for him in politics, too. In global trade, well, it will be a change of pace.
***
It was nearly dawn in Atlanta on October 5, 2015, the day TPP was finally going to be completed. Froman had slept eight hours in the previous five days. His agricultural negotiator, Darci Vetter, had slept zero hours in three days. But the deal was still not done, because they were still hammering out dairy issues, horse-trading over quotas and tariffs and sanitary requirements for everything you could imagine that gets its start from an udder: fluid milk and powdered milk, sliced cheese and bulk cheese, butter and yogurt and, yes, whey, which has become an important ingredient in products like protein bars and Cool Ranch Doritos.
As usual, Canada was playing defense, because the sanctity of its dairy protections is a third-rail political issue there, and Harper was up for reelection. The United States was playing offense as well as defense, because its dairy farmers want to export to Canada but don’t want to face competition from New Zealand. After keeping dairy out of NAFTA, Canada had waited until late in the TPP process to offer any opening, and its initial offer had been so minuscule that the United States had refused to counter. “The numbers were basically like, fill one truck with butter,” Vetter recalls. But again, the negotiators kept grinding. At 5:30 a.m., Canada finally agreed to accept imports of about 4,000 tons of butter, 14,500 tons of cheese and 50,000 tons of milk—the first real incursion into its market, even though it amounted to just over 3 percent of its sales. The United States agreed to a similarly modest opening, and everyone shook hands—except for New Zealand’s negotiator, who was too angry to shake hands with Vetter.
“It was a real nail-biter,” Vetter says. “Nobody was really happy, but nobody had anything left to give. We all had been pushed to our limits.”
Trump seems to have a zero-sum view of trade, of deals, maybe of life. He believes in winners and losers, and his idea of a ‘win-win’ is a deal where he wins twice.
Now that all that work has been set aside, the optimistic view in certain precincts of the trade establishment is that Trump will be realistic enough to pick it up again. Despite his fiery rhetoric about horrible trade deals, his abrupt exit from TPP and his disdain for multilateralism, his administration does include former TPP supporters like Ross and Secretary of State Rex Tillerson. Agricultural interests love NAFTA, a conundrum for a president who won overwhelming rural majorities. Some experts suspect that once Trump’s team starts feeling the heat from farm groups and other pro-NAFTA industries, delves into the details of what the United States already negotiated in TPP and recognizes its bleak prospects of persuading Mexico or Canada to give up much more, it will cut similar deals and declare victory. Perhaps Trump’s chest-thumping threats about border taxes will even extract additional concessions; Ross suggested at his hearing that they might just be a pre-negotiation tactic designed to scare the Mexicans.
But even extracting concessions Obama already extracted could be much harder than it sounds. Getting Canada to open its dairy industry even slightly took a herculean negotiating effort—Vetter calls it “the most painful thing I’ve ever done”—but ultimately Canada knew it had to give a bit on dairy to get market access to Japan and other TPP countries for its other industries. Presumably, in a NAFTA-only negotiation that had nothing to do with Asia, Canada would want something different. What Canada probably wants most from the United States is better access to government procurement, but that directly conflicts with another one of Trump’s big promises, that he will force U.S. contractors to use “Made in America” products for pipelines and other public works.
“You can’t automatically assume what was negotiated before would work in a different context,” Gilles Gauthier, the economic affairs minister for Canada’s embassy to the United States, told me with a sly negotiator’s grin. Yves Leduc, policy director for Canada’s dairy trade group, was more direct: “Obviously, what happened in TPP was not our first choice. We’d expect a totally different dynamic in new negotiations.”
Presumably, Mexico would also have to get something if Trump wants it to agree to sweeten NAFTA. When I asked Smith Ramos what Mexico might ask from the United States, he mentioned easier movement into the United States for its professionals. I pointed out that easing border crossings for Mexicans seems like the last thing Trump wants. “Well, we don’t want to pre-judge,” Smith Ramos said with a shrug.
Congress would also have to approve any renegotiation of NAFTA, which would require threading an extraordinarily narrow needle given the current state of trade politics. Republicans are divided over trade. Democrats are mostly skeptical of trade and almost uniformly hostile to Trump. And members of both parties have all kinds of industry-specific interests that could scuttle a deal. House Speaker Paul Ryan of Wisconsin and Senate Minority Leader Chuck Schumer of New York will look out for their dairy farmers. Senate Finance Committee Chairman Orrin Hatch is adamant that any new trade deal has to include powerful protections for U.S. pharmaceutical patents. It won’t be easy to strike a balance that majorities will accept.
The politics will be even harder in Mexico, where Trump’s Mexico-bashing nationalism is creating an America-bashing nationalist backlash, and elections are looming in the summer of 2018. Peña Nieto is deeply unpopular, and this is not an opportune time for him to make a deal with the gringo who wants to build the wall, especially if Trump demands extravagant new concessions. Smith Ramos says Mexico is already preparing for the possibility of life without NAFTA, trying to build bridges to the rest of Latin America and Asia in case the United States turns inward. “We hope cooler heads will prevail, but we have to deal with political reality,” he says.
In fact, it would be much easier for Trump to leave NAFTA than renegotiate it. He would merely need to give six months’ notice, and he wouldn’t need approval from Congress. A drastic move like that would also be consistent with Trump’s beliefs that NAFTA was catastrophic and trade deficits are America’s worst economic problem, as well as Navarro’s desire to push American manufacturers to repatriate their supply chains. This kind of 19th-century mercantilism could trigger a trade war, prompting other countries to try to block U.S. exports, but Trump has said: “Who the hell cares if there’s a trade war?”
If Trump’s rhetoric is just a negotiating ploy, many economists see it as a ploy tantamount to holding a gun to his own head and threatening to shoot.
If Trump’s rhetoric is just a negotiating ploy, many economists see it as a ploy tantamount to holding a gun to his own head and threatening to shoot, because it’s no secret that a trade war could trigger a deep recession in the U.S. Ditching NAFTA could be particularly devastating to U.S. farmers, as well as automakers and other exporters who rely on regional supply chains that would take years and multibillion-dollar investments to recreate at home. It might bring back some factories, but it would make American products more expensive for consumers—and if it makes those products too expensive to compete globally, it could lead to overall job losses in Trump strongholds like the Rust Belt.
Meanwhile, foreign policy strategists worry that U.S. global influence will dwindle if Trump stiff-arms the world. Like Mexico, Canada is exploring new partnerships that look a bit like Fortress America insurance, recently concluding a trade deal with the European Union and starting talks with China about closer cooperation. Obama always warned that China would exploit the political vacuum if the United States walked away from TPP, and several TPP countries in Asia are now looking into a China-led regional trade alliance that is unlikely to include any of TPP’s protections for labor, the environment, intellectual property or an open internet.
In Washington, though, uncertainty reigns. TPP is dead, and Obama’s efforts to negotiate a U.S.-European trade alliance are barely breathing. Trump has spoken to members of Congress about his desire to reshape NAFTA in a hurry, but he has been uncharacteristically cryptic about how he intends to do that. By the end of February, his nominee for U.S. trade representative, Robert Lighthizer, was still waiting for a congressional waiver he needed to serve because of work he has done for China and Brazil. Meanwhile, Trump’s transition officials have been making the rounds, telling the civil servants whose efforts the president has so publicly ridiculed that they’re valued and talented professionals, urging them to think about creative ways the new administration could renegotiate NAFTA.
“Everyone here is thinking the same thing: We already did that!” one staffer told me. “It was called TPP, and you got rid of it.”