- President Donald Trump said he would terminate the North American Free Trade Agreement (NAFTA) in the coming days.
- The move appears to be a ploy to force Congress to pass Trump’s update to the NAFTA agreement, the US-Mexico-Canada Agreement (USMCA).
- Both Democrats and Republicans have raised concerns with the USMCA.
- But such a move would face legal challenges, and the likelihood of a NAFTA withdrawal is low.
Facing the possibility of an arduous and difficult approval process for a new trade deal with Mexico and Canada, President Donald Trump hinted he would attempt to force Congress’ hand.
Trump on Saturday threatened to begin the formal process to pull the US out of the existing North American Free Trade Agreement (NAFTA), a move that would be designed to give Congress little option but to approve the US-Mexico-Canada Agreement (USMCA).
“I’ll be terminating it within a relatively short period of time. We get rid of NAFTA. It’s been a disaster for the United States. It’s caused us tremendous amounts of unemployment and loss and company loss and everything else,” Trump told reporters aboard Air Force One. “That will be terminated. And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well.”
Trump formally signed the USMCA alongside Canadian Prime Minister Justin Trudeau and outgoing Mexican President Enrique Pena Nieto at the G20 summit on Friday. In the wake of ceremonial signing, lawmakers on both sides of the aisle expressed some misgivings about the USMCA.
“I think President Trump’s goal here was to light a fire under Congress,” Larry Kudlow, Trump’s chief economic adviser, told reporters on Monday.
Under the Trade Promotion Authority that Trump is using to advance the USMCA, only a majority of each chamber needs to vote for the deal for it to become law. But Democrats, especially those in the incoming House majority, have the chance to influence the deal through so-called implementation legislation that changes US law to abide by the trade deal’s rules.
Democratic leader Nancy Pelosi has repeatedly said that the implementation legislation must include language that ensures some aspects of the agreement are stringently enforced.
“Whatever they’re calling it now, it has some kind of gobbledygook name. The trade agreement formerly known as Prince – no, I mean, formerly known as NAFTA , is a work in progress,” Pelosi said at a press conference on Friday. “We are admiring of the Trade Representative and the attempts he has made to make sure that we are aware of what is in it. But what isn’t in it yet is enough enforcement reassurances regarding provisions that relate to workers and to the environment.”
Some Republicans have also raised concerns with the deal. In particular, a group of nearly 40 conservative members in the House pointed to language that would extend workplace protections to transgender workers, saying the USMCA is “no place for the adoption of social policy.”
Negotiators added a footnote to the USMCA prior that attempted to address the concerns, saying that current US law would satisfy the requirement. But some GOP members still balked at the language. Rep. Andy Harris, one of the Republicans who signed onto the letter, told Business Insider that his concerns remain.
“Regardless of the footnote, I still have grave concerns about the inclusion of this language in the USMCA, as well as the precedent that the inclusion of this language in any trade agreement represent,” Harris said in a statement.
Given the possibility of Democratic defections, Trump needs almost every Republican vote for the deal to pass.
A risky game of chicken
Trump has decided to invoke a tricky tactic that could blow up in his face, analysts said.
The leader of any NAFTA nation can invoke Article 2205 of the deal, which would start a six-month clock before the US could formally pull out of the deal. In the event that the US did pull out of NAFTA, tariff rates between the US and the other two members would revert to pre-NAFTA levels. The move would also likely have major economic repercussions and rattle global markets.
“The basic idea/strategy: Do not give recalcitrant Democrats the choice between the status quo and USMCA,” Chris Krueger, a strategist at Cowen Washington Research Group, wrote Monday. “It is USMCA or bedlam at the borders with a six-month NAFTA version of a hard Brexit.”
There are also legal questions about whether Trump can remove the US from NAFTA unilaterally.
“The President has the authority to terminate NAFTA, but it is unclear whether Congressional approval is needed, and regardless, would likely be fought in the courts,” wrote Sacha Tihanyi and Brittany Baumann, strategists from TD Securities.
Democrats have repeatedly insisted that any attempt to remove the US from NAFTA would require congressional approval. A report from the Congressional Research Service also appeared to back up that assertion.
Tihanyi and Baumann suggested that the advanced stage of the ratification process and possible negatives of failing to ratify the USMCA likely neuter Trump’s threat.
“Termination risks are less meaningful at this stage,” the pair said. “The agreement is signed, and the big changes in USMCA, particularly rules of origin and wage clauses, have bipartisan support. Furthermore, political incentive is low for lawmakers (Democrat or Republican) to terminate trade agreements.”
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