Moneybox

It Really Looks Like Trump Wants to Kill NAFTA

WASHINGTON, DC - JUNE 05:  U.S. President Donald Trump arrives at a 'Celebration of America' event on the south lawn of the White House June 5, 2018 in Washington, DC. The event, originally intended to honor the Super Bowl champion Philadelphia Eagles, was changed after the majority of the team declined to attend the event due to a disagreement with Trump over NFL players kneeling during the national anthem.  (Photo by Alex Wong/Getty Images)
America first?
Alex Wong/Getty Images

Donald Trump does not want to renegotiate the North American Free Trade Agreement. He wants to kill it.

That, more or less, is the message Larry Kudlow, director of the White House’s National Economic Council, delivered during a Tuesday morning appearance on Fox & Friends. The president “is very seriously contemplating kind of a shift in the NAFTA negotiations,” which are currently at an impasse, Kudlow said. “His preference now, and he asked me to convey this, is to actually negotiate with Mexico and Canada separately. He prefers bilateral negotiations.”

Saying that you want to carve NAFTA into a series of two-way deals is another way of saying that you want to end it. The entire point of the pact is to create a single set of rules for trade between Canada, the United States, and Mexico. Without that, there is no NAFTA.

Despite being the bearer of bad news for free trade supporters, Kudlow tried to reassure viewers that the White House isn’t about to do anything rash. “The president isn’t going to leave NAFTA,” he said. “He’s not going to withdraw from NAFTA. He’s just going to try a different approach.” This is not especially soothing, though, since it’s not clear why Canadian or Mexican officials would agree to negotiate one-on-one with Washington unless the White House first pulled out of the current deal. At the moment, it sounds like Trump is essentially demanding the house and sole custody of the kids before even filing for divorce.

The administration’s move is not entirely surprising. In fact, some predicted it. After the president suggested in October that the U.S. might be open to a solo free trade deal with Canada if NAFTA talks crumbled, one of the country’s former trade negotiators speculated that we might see the sort of scenario that now seems to be unfolding:

The U.S. administration’s game plan is now clear: Make multiple outrageous demands that, even if partially accepted, constitute a huge “America First” victory; or, if rejected outright by Canada and Mexico, set up a failed negotiation and a messy denouement—also a win in terms of U.S. President Donald Trump’s public antipathy to the North American free-trade agreement.

What is now apparent about that prospective denouement is the likelihood of the United States promoting separate bilateral negotiations with Canada and Mexico after jettisoning three-way NAFTA talks.

Negotiations over NAFTA hit a wall recently after the Trump administration demanded that any new deal include an automatic five-year expiration date, after which all three countries would have to agree to renew it. Now, Trump—via Kudlow—says its time to abandon three-way talks altogether. Things are playing out exactly as you’d expect if the administration’s ultimate goal was to bury NAFTA for good.

Ever since his campaign, Trump has argued that the United States would be better off negotiating bilateral free trade deals. That’s the line Kudlow more or less stuck to on Fox. Canada and Mexico are “different countries” with “different problems,” and “countries that are different probably deserve different deals,” he explained. “Oftentimes, when you have to compromise with three countries, you get the worst of the deals. Why not try to get the best of the deals for the American people, American workforce, and the American economy, and presumably for their economies as well?”

This case is a bit flimsy. Having lots of two-way trade agreements with individual countries can create a confusing mess of rules for businesses that make it harder to import and export. (Experts call this the “spaghetti bowl effect.”) And sometimes, having more countries at the table can make it easier, not harder, to reach an agreement where everyone comes away happy, since negotiators can pull off the equivalent of three-way trades in sports. Mexico might give the U.S. better terms on car parts, for instance, if it can get somethingz valuable in return from Canada.

But Trump’s concept of negotiations has never seemed to operate on that level of sophistication. Instead, he sees bargaining more like a sumo match where two countries try to charge and wrestle one another to the floor. Now, he’s telling Mexico and Canada he wants to throw down.