President Donald Trump says he’s finally going to do what he’s long threatened: tear up NAFTA.
Trump’s warning came as he left the G20 meeting in Buenos Aires, Argentina, this weekend. There, Trump, along with former Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau, signed the replacement for NAFTA — called the United States-Mexico-Canada-Agreement, or USMCA, as Trump has rebranded it stateside.
“I’ll be terminating it within a relatively short period of time,” Trump said Saturday of the original NAFTA. “We get rid of NAFTA. It’s been a disaster for the United States.”
Trump’s threat is intended for Congress — especially Democrats, who have objected to elements of the renegotiated trilateral trade pact with Mexico and Canada. The House of Representatives and the Senate must approve the USMCA, and both parties have voiced reservations. Democrats don’t think it does enough to protect American jobs and workers, and some Republicans see the new deal as too protectionist.
The withdrawal threat is a Trumpian ultimatum: Take my trade deal, or there’s no deal at all.
Trump loathes NAFTA. He has called it the “worst trade deal ever signed.” He has threatened to tear up the trade pact in the past, but was ultimately persuaded to renegotiate the agreement, leading to the USMCA.
Trump has touted the USMCA as a historic trade deal, even though it’s really an updated and revised version of NAFTA — which itself is a nearly 25-year-old agreement negotiated by George H.W. Bush.
So Trump got a new deal and declared victory. And now he’s wielding NAFTA as a political cudgel.
The president’s threat is serious, but it faces a few potential pitfalls. Trump can likely unilaterally pull out of NAFTA, but Congress has a lot more power on trade than on other international agreements, and experts say lawmakers could find ways to protect NAFTA or limit Trump on trade in other ways.
Even if Trump invokes Article 2205 of NAFTA — the mechanism a country can use to leave the pact — the process is not immediate: It requires a six-month of withdrawal, after which Trump can decide to leave.
That six-month timeline matters. Congress could certainly take up and vote on USMCA before then, in 2019. US Trade Representative Robert Lighthizer, the administration’s chief trade negotiator, told reporters last week he wants the USMCA to pass with strong bipartisan support, which might not happen if the administration tries to strong-arm Congress.
The administration has threatened NAFTA withdrawal before to pressure Congress, most notably in the spring of this year. It never pulled the trigger, though, and there are good reasons why.
Congress does have a degree of leverage, and even if Trump succeeds, ripping apart the original NAFTA would generate incredible economic uncertainty, potentially dealing a tremendous blow to business and manufacturing and putting jobs at risk. Trump could blame Congress all he wants, but the chaos would lead back to him.
Trump might not risk it in the end. Then again, in trade as in everything else, Trump has embraced unorthodox — and rarely predicable — tactics.
So can Trump really do this?
Trump wants to withdraw from NAFTA. But it’s complicated.
Trump can likely unilaterally pull out of NAFTA by invoking Article 2205, which gives Canada and Mexico a six-month notice of the president’s intent to terminate the agreement. This doesn’t end NAFTA outright (Mexico and Canada can still stay in), and, in theory, Trump could change his mind in the six-month time window.
But after that it all becomes murky. Experts say that Congress likely has some ability to protect NAFTA, or can use its powers to curtail Trump on trade elsewhere.
“The very simplest reason is that the Constitution gives Congress the power to set terms of trade, not the executive branch,” Todd Tucker, a fellow at the Roosevelt Institute, a liberal think tank based in New York, told me.
Congress — just as it needs to do for the USMCA — had to approve NAFTA. It did so through the 1993 NAFTA Implementation Act, which is how Congress implements the provisions of NAFTA under US law.
There’s nothing in that law that says a president needs permission from Congress to terminate NAFTA, Gary Clyde Hufbauer, a trade policy expert at the Peterson Institute of International Economics, told me. Which means Trump is probably free to do what he wants. But the president can’t singlehandedly scrap that implementation law, which means some of the provisions would remain in force.
The end result, Tucker said, could be a kind of “zombie NAFTA” where the US isn’t formally part of NAFTA, but still trades much like it is.
This is by no means a promising scenario, and it wouldn’t cushion the US from the economic uncertainty that would come from terminating a trillion-dollar trade agreement.
Exactly how all of this would play out is untested and up for debate — which means that if Trump does attempt to withdraw from NAFTA, he’s almost definitely going to be challenged in court.
Congress does have some remedies. It could potentially pass legislation to preempt actions by the administration and that prevents unilateral withdrawal from NAFTA. Or lawmakers could give themselves more power over trade and take some away from the president.
The self-declared Tariff Man isn’t going to be keen on giving up authority, so these options of would likely require enough bipartisan support in Congress to withstand a presidential veto, or be attached to must-pass legislation like, say, an upcoming spending bill.
Congress (and Nancy Pelosi) has some leverage
Trump hasn’t formally sent a notice of withdrawal to Canada or Mexico yet. Larry Kudlow, the National Economic Council director, told reporters Monday that he thinks Trump “is trying to light a fire under Congress,” though he added he hadn’t talked about it in much detail with the president.
The lame-duck Congress — which will be spending most of its last days in office trying to avert a government shutdown — likely won’t take up USMCA this session, which means it falls to the new, divided Congress in 2019.
And Congress is apparently still undecided, though Trump has said USMCA has gotten “great reviews” that are “sooo much better than NAFTA.” Both Republicans and Democrats have found something to dislike in USMCA.
Great reviews on the USMCA - sooo much better than NAFTA!— Donald J. Trump (@realDonaldTrump) November 30, 2018
Democrats largely support new labor provisions in the trade deal, but have worried they won’t go far enough to protect American workers, and that labor and environmental standards lack sufficient enforcement mechanisms.
“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,” soon-to-be Speaker of the House Nancy Pelosi (D-CA) said last week, adding that there aren’t yet “enough enforcement reassurances regarding provisions that relate to workers and to the environment.”
Republicans have also offered lukewarm reviews, and have objected to some of the more restrictive provisions on the auto industry as well as the scaling back of a NAFTA provision that let corporations sue governments. There are also more local concerns, including a complaint from Sen. Marco Rubio (R-FL) that the deal would hurt some Florida farmers.
Republicans, however, are unlikely to buck the president on a signature trade accomplishment — especially since the USMCA alleviated fears among pro-free trade Republicans that Trump would abandon NAFTA altogether before a new deal could be negotiated.
Sen. Chuck Grassley (R-IA), who will chair the Senate Finance Committee that will usher the USMCA through the chamber in 2019, even gave a sort-of endorsement of the president’s hardball strategy. “That’s a hard-nosed approach, but sometimes the president has to use that if he wants to get things accomplished,” Grassley said on a Monday radio show, according to the Washington Post.
Congress also is limited in how much it can tweak USMCA, though there is some wiggle room. The USMCA has been signed, but there are still a few more steps in the process before implementing legislation — which makes sure the USMCA matches up with and is adopted as US law — is introduced in the House and the Senate.
Once it is, the legislation will be “fast-tracked,” and lawmakers will have 90 days to approve it with an up or down vote, meaning they can’t make changes or add any amendments.
Trade Representative Lighthizer has said there’s no chance that the administration will reopen negotiations with Mexico and Canada. But the administration drafts the implementing legislation, typically with the consultation of Congress, which means some bipartisan concerns could be addressed about the enforcement of some provisions, which might ease its passage. (Lobbyists will certainly be weighing in as well.)
Lighthizer said at the G20 meeting that he’s open to addressing lawmakers’ issues in this process. He also told reporters last week he wants the USMCA to pass with strong bipartisan support. “We’ll get the support of a lot of Democrats, a very high number of Democrats,” Lighthizer said. “Absolutely, just no doubt about it.”
The problem, of course, is that bipartisan displeasure with USMCA doesn’t mean consensus. If the administration accedes to any demands from one side, it’ll shore up opposition on the other side.
Which might be the purpose of the NAFTA withdrawal threat: to prevent either Democrats or Republicans from asking too much, and forcing them to accept the the USMCA in more or less its current form.
But Trump might need to be wary of pushing it too far. In 2008, House Democrats, then in the majority, accused President George W. Bush of trying to jam through a free trade agreement with Colombia, saying the administration didn’t do enough to address protections for US workers and human-rights abuses in Colombia.
Then-Speaker Pelosi responded by blocking the agreement from “fast track” consideration altogether, taking it off the accelerated timeline and putting the deal in jeopardy. (President Barack Obama ended up taking up a version of the Colombia agreement in his first term.)
A Colombia trade deal isn’t as massive or as critical as the USMCA, and the US relationship with both Canada and Mexico is far more strategically and economically important. But Pelosi could threaten to un-fast-track the USMCA if the Trump administration pushes Democrats too far.
“It’s completely discretionary — as long as she has the majority of support for it, she could do it for whatever reason she wants,” Tucker said. “[It] doesn’t have to be a certain legal reasoning, it could just be, ‘I don’t like Trump today.’”
There are political risks for Pelosi and the Democrats if they do this, though, particularly if Trump terminates NAFTA and blames Democrats for the mess.
But Trump unilateral move on NAFTA — which could have an immediate impact, particularly on financial markets — might unite both Republicans and Democrats who’ve hesitated to stand up to Trump’s bullying on trade so far. If Trump decides to kill NAFTA without another deal in place, Tucker told me, “whatever political goodwill there is at the margins from Senate Republicans or House Democrats will go away pretty quickly.”