Trump and big business collides as NAFTA teeters
Posted by David J. Lynch on 14th November 2017
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This post was originally published on THE WASHINGTON POST

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By david j. lynch,

U.S. business groups are pinballing between despair and panic as negotiations over a new North American Free Trade Agreement resume, with the Trump administration’s hard-line demands risking a worsening standoff and perhaps the eventual collapse of the talks.

Corporate concerns were only inflamed by President Trump’s Asia trip, which showcased his “America First” trade policy and left the United States isolated as 11 other nations agreed to new trade liberalization measures.

On the eve of this week’s NAFTA talks, the fifth of seven scheduled rounds, the uncompromising U.S. stance now risks scuppering a 23-year-old treaty that helped knit together a colossal continental economy, business groups said.

“Everybody I talk to is very gloomy,” said Bill Reinsch, a distinguished fellow with the Stimson Center and a former head of the National Foreign Trade Council. “People are expecting very little out of this round.”

In a belated mobilization to save the deal, the U.S. Chamber of Commerce in recent weeks flooded Capitol Hill with executives from companies that stand to lose lucrative trade preferences if Trump fulfills his threat to withdraw from the treaty.

The Trade Leadership Coalition, a separate industry-funded group headed by a former Caterpillar lobbyist, last week began airing pro-NAFTA advertisements in nine states that Trump won in 2016.

The 60-second television ads — running in Texas, Tennessee, Nebraska, South Dakota, Mississippi, Michigan, Ohio, Iowa and Indiana — highlight economic gains in manufacturing and agriculture before concluding: “The United States is stronger than ever before . . . NAFTA works, but President Trump is threatening to withdraw from NAFTA.”

The conjunction of the NAFTA talks in Mexico City this week and the president’s return from his five-nation Asia swinghave underscored Trump’s continued difficulty translating his populist trade instincts into tangible achievements.

The last NAFTA round, in Washington, ended on a sour note with Mexico, Canada and U.S. business groups expressing alarm over several U.S. proposals.

[How a group of Florida tomato growers could help derail NAFTA]

“NAFTA is in a very difficult place because the U.S. has put a series of demands on the table that are unlike demands that have been seen in any other trade agreement,” said Robert Holleyman, deputy U.S. trade representative under President Barack Obama. “Canada and Mexico are completely unclear about how to respond.”

Still, both Mexico and Canada are under pressure to reply to the U.S. demands, however unconventional, in the next round. “If there are not counterproposals, then NAFTA disappears,” said Rogelio Ramírez de la O, an economist and director of the consulting firm Ecanal.

Key stumbling blocks include the administration’s bid to rewrite the “rules of origin” to require more of a product to be made within North America, and within the United States, to qualify for the treaty’s lower tariffs. Robert E. Lighthizer, the U.S. trade representative, also is seeking a new “sunset clause” that would require the treaty to be renewed every five years, a feature that business groups say would introduce excessive uncertainty in their planning.

“I can’t imagine Mexico or Canada agreeing to any of these ‘King Trump’ demands. Even if they did, I can’t imagine Congress approving them,” said Scott Miller, former director of global trade policy for Procter & Gamble.

The unusual proposals, aimed at shrinking the bilateral trade deficits that vex the president, are designed to set the stage for the walkout that Trump has repeatedly threatened, says Miller, now a senior adviser at the Center for Strategic and International Studies.

Such a move probably would trigger an uproar on Capitol Hill, as well as legal challenges.

The political calendar in Washington — where Republicans are occupied with a make-or-break debate over tax legislation — means there is little prospect of a dramatic breakthrough or angry walkout in Mexico City this week.

“There’s a recognition that they’ve now hit serious resistance, and with tax reform moving they need to be a little more careful about things blowing up,” one business representative said.

But the slowdown is narrowing an already tight window for agreement. Negotiators last month agreed to extend the talks through March, painfully close to Mexico’s July 1 presidential election, which could inflame nationalist sentiments.

“The outlook is extremely negative,” said Edward Alden, a trade expert at the Council on Foreign Relations. “The issues the U.S. tabled are tremendously contentious, and none of them have an obvious path to compromise.”

[In Canadian lumber town, real fears over a trade war with Trump]

Economic fallout from an eventual NAFTA collapse would land hardest on Mexico, which would lose nearly 1 million jobs, according to ImpactECON, a Boulder, Colo.-based consultancy.

In public, the Mexican government insists its economy can weather the trade accord’s demise. Mexican officials have been courting trade partners in South America, Asia, Europe and elsewhere. to diversify the economy outside its reliance upon the United States. President Enrique Peña Nieto was in Vietnam last week for talks that produced agreement on the “core principles” of an 11-nation trade accord without the United States.

But others think it will be difficult to find a replacement for the United States. “Despite the rhetoric of the Mexican government, there are not a lot of commercial options besides the United States market,” said Jerjes Aguirre Ochoa, a researcher at the University of Michoacan. “It is the Mexican government that is weak here, and should negotiate and not just deny irrational proposals . . . We would lose a trade war.”

Mexico’s private-sector advisers have warned the Mexican government that there is little room to alleviate Trump’s concerns about the deficit by restricting the key automobile, textile, or agricultural sectors, according to Juan Pablo Castañon, president of Mexico’s Business Coordinating Council.

“We have already told the government that these are areas where there is no opportunity,” said Castañon, whose coalition of business groups is advising Mexico’s negotiating team. “In energy, e-commerce, technology, that is where we can find answers to the deficit.”

Despite the pervasive gloom, some business executives find solace in the fact that the U.S. president often blusters before taking a more moderate path. The potential economic consequences of the talks failing next year also should concentrate negotiators’ minds.

“I continue to think this can be done,” Holleyman said. “It’s clearly in the interest of all three countries to find a win-win-win outcome. But we’re a long way from that.”

Joshua Partlow and Gabriela Martinez in Mexico City contributed to this report.