Earlier this month, House Speaker Paul Ryan set a May 17 deadline for the Trump administration to submit a new NAFTA deal with Mexico and Canada to Congress for approval.
But on Thursday, the Trump administration missed that deadline — in fact, they didn’t even come close.
“The NAFTA countries are nowhere near close to a deal,” US Trade Representative Robert Lighthizer, who is negotiating a new version of the 24-year-old trade agreement, said in a statement on Thursday. He added that there were “gaping differences” between the US, Canada, and Mexico on several issues, including labor standards and intellectual property protections.
Ryan said on Thursday that there might be a little “wiggle room” to push back the congressional deadline, and the administration has indicated that it will try to make the most of the extra time. “Some areas have come together and some have not. We’ve got at least another week, according to Speaker Ryan, so we’ll see how it goes. It’s in formation. It’s not dead,” National Economic Council Director Larry Kudlow said on Friday.
But experts point out that the differences between the countries on a number of key issues are so vast that the window for congressional approval has effectively closed. “Anything that takes us beyond this [date] just makes it impossible for the current Congress to pass it,” Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, told me.
That means it’s likely that a new Congress, elected after the midterm elections in November, will be signing off on the deal. Since there’s a good chance that Democrats could take control of at least one chamber, the administration might have to take into account a whole new set of demands around issues like labor regulations to win their approval — which could push back the process even further.
President Trump’s patience could grow thin if the negotiation process takes too long. Trump has threatened on many occasions in the past to terminate the existing free trade agreement altogether if a new deal can’t be reached. And if that happens, it could cause chaos across North America — disrupting supply chains, causing the price of goods to increase, and forcing layoffs in dozens of industries.
The new NAFTA is still a long way away
After about nine months of negotiations, the US, Canada, and Mexico are far from settling on a final agreement.
Experts say that the countries appear to be at an impasse over the US’s proposal for a five-year sunset clause that would require the countries to vote every five years on whether to stay in NAFTA. Canada and Mexico are staunchly opposed to the idea since it would create enormous uncertainty for businesses’ supply chains and investors.
The US is also at odds with Canada and Mexico over its desire to get rid of the “investor-state dispute settlement” (ISDS) mechanism, a provision that allows corporations to sue foreign governments in tribunals if they think they’ve been wronged by them.
The Canadians in particular don’t want to let this go; if they do, it will likely leave them with less power to respond to unilateral trade barriers on Canadian goods by the US.
Another difference is that the US also favors more robust intellectual property protections than Canada and Mexico. They allow American corporations like pharmaceutical companies to hold patents on their products for a longer period of time and edge out foreign competition.
Sorting out these differences could take months of negotiations. There’s nothing bad about that per se, but it means that the political landscape for approving the deal is probably going to change in substantial ways before they conclude.
De Bolle estimates that had the Trump administration met Ryan’s deadline, Congress likely would have voted to approve the new NAFTA in December, after the midterm elections and during the lame-duck session — which in and of itself would have been politically controversial. Voters could get angry if newly elected lawmakers don’t get to vote on such an important issue.
Now, in all likelihood, it will be next year’s Congress — which could look very different from the current Republican-controlled Congress — that will vote on any deal secured by Trump.
There’s a good chance that Democrats could win the House of Representatives, and that would give their specific vision for what the new NAFTA should look like more weight. Democrats could agitate for higher standards for issues like labor regulations in the new NAFTA agreement, and that advocacy could potentially make the negotiation process with Canada and Mexico even longer.
There are other complicating factors as well. In July, Mexico will hold national elections, and the current frontrunner for the presidency is a left-wing firebrand named Andrés Manuel López Obrador. Obrador is pro-NAFTA, but he’s also more likely to push back hard against Trump if Trump starts to antagonize him, experts say. That could slow the pace of talks even more.
A fiery Trump-Obrador standoff over NAFTA could have serious consequences. Trump could, theoretically, approach it the same way he dealt with the Iran nuclear deal — set a public deadline for amending the agreement and promise to pull out of the original deal if the deadline isn’t met.
Free trade agreement negotiations are, by their very nature, tedious and messy processes that can take years to wrap up. And Canada and Mexico have indicated that they’re fine with NAFTA negotiations spilling into next year. But Trump could grow tired of the process and demand that something definitive happen quickly.
“Where you get the risk is the Trump administration or Trump himself throws his hands up in the air and says, ‘This is hopeless — we will go with nothing instead,” de Bolle says.
Trump doesn’t always follow through on his most explosive threats. But he’s certainly done it enough times that the possibility should be taken seriously.