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Trump threats hang over NAFTA negotiations

Second round of talks begin Sept. 1 in Mexico City, Mexico.

by Eric Martin

President Donald Trump won’t be in the room when negotiations resume on Friday to revise the North American Free Trade Agreement, but his threats to blow up the talks could figure prominently.

Since the first round of discussions wrapped up Aug. 20, Trump has threatened to withdraw from NAFTA four times -- during speeches in Arizona and Missouri, in a Twitter post and at a news conference with the Finnish president. While Mexican officials have dismissed the comments as a scare tactic that could also be aimed at energizing Trump’s anti-trade supporters, the threats are a reminder of the significant leverage that a president holds to scuttle the $1.2 trillion trading area. A party can withdraw with six months’ notice.

Trump’s tone contrasts with the generally polite and constructive atmosphere among negotiators in the early stages, according to two people taking part in the private discussions who asked not to be identified. Still, the mood could change quickly when officials start moving from exchanging proposals to bridging differences. On a personal level, many of the negotiators have known each other for years and brokered deals in the past, the two people said.

“These are tough, hard, complex technical and political negotiations, and someone who is very impatient and who has in the past said that he doesn’t understand why this has to take so long could be tempted to press the nuclear button,” said Arturo Sarukhan, a former Mexican ambassador to the U.S. “That’s the danger that is out there.”

Brink of Withdrawal

Trump pulled the U.S. back from the brink of withdrawal in April. He changed his mind after seeing a map of NAFTA-dependent U.S. states whose votes helped propel him to the White House. Trump may not want to start picking fights with lawmakers as he looks for a legislative win on raising the debt ceiling in September and a tax overhaul by year-end.

With Trump’s threats of exiting NAFTA “you don’t know if this a negotiating tactic or substantial,” said Fred Bergsten, a senior fellow at the Peterson Institute for International Economics. “If he proposes to terminate, the reaction in both Mexico and Canada would be awful. Agriculture in particular would go ballistic, the auto industry would go ballistic.” 

Trump and Canadian Prime Minister Justin Trudeau in a call on Thursday discussed the ongoing NAFTA renegotiation and “stressed their hope to reach an agreement by the end of this year,” the White House said in emailed statement. In an interview with CNBC that aired earlier, Treasury Secretary Steven Mnuchin repeated Trump’s reference to abandoning NAFTA. “I’m hopeful there’s a win-win solution, but the president has been very clear, he intends to renegotiate this deal and if not he wants to get out of it,” he said. 

Behind closed doors, Mexican officials have worried that political turmoil or falling approval ratings at home could make Trump look for a fight abroad to divert attention and fire up his base, according to two people familiar with their thinking. Under that scenario, Mexico could become an attractive political pinata, regardless of NAFTA’s merits, they said.

“There are various risks, but one of the most important without a doubt, is the possibility that President Trump could take a decision unilaterally that he wants to leave the deal,” said Moises Kalach, the trade director for Mexico’s business lobby. 

Trump’s latest threat to terminate NAFTA and reset regional trade relations came during a speech on tax reform in Springfield, Missouri, on Wednesday. It came just hours after U.S. Trade Representative Robert Lighthizer gave Trump a status update. 

Mexico and Canada so far are taking Trump’s threats in a stride. After Trump wrote on Twitter Sunday that Mexico was being very difficult on NAFTA, the country’s foreign ministry said it wouldn’t renegotiate the trade deal via social media. The Canadian government has acknowledged there’ll be moments of drama during the NAFTA talks, but it’s stressing the focus is on securing a modernized new deal.

Fast Deal 

One aspect of the talks the governments can agree on is reaching a deal fast because of the political calendar. Mexico holds presidential elections in July and U.S. Congressional mid-terms are in November next year, making an agreement more tricky for politicians. The next session to revamp the 23-year-old deal will run Sept. 1-5 in Mexico City followed by talks in Canada later in September and probably a few more rounds. 

“If Trump expects to have a negotiation completed by the end of year or he’ll withdraw from NAFTA, I would put my money on withdrawal,” said Carlos Vejar, a lawyer at Holland & Knight in Mexico City who was part of the Mexican economy ministry’s negotiating team for more than two decades. “Looking from past experiences of other treaties, I’ve never seen a negotiation that took less than a couple of years.”

--With assistance from Josh Wingrove, Toluse Olorunnipa and Nacha Cattan.

To contact the reporter on this story: Eric Martin in Mexico City at emartin21@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net; Vivianne Rodrigues at vrodrigues3@bloomberg.net

arah McGregor, Randall Woods

© 2017 Bloomberg L.P

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