President Trump’s comments make it seem like the United States holds all the cards when it comes to the future of the North American Free Trade Agreement.
Trump repeatedly described the trade deal as being the “worst” ever, blaming it on encouraging American companies to move factories south of the border. When Politico reported Wednesday on a possible executive order to get out of NAFTA, it was later framed as an internal battle between economic nationalists and so-called “globalists” in the White House. By the end of the day, Trump had decided to renegotiate the deal instead of scrapping it altogether.
What has been left out of the conversation is that on Tuesday, Mexico’s foreign minister had threatened to leave NAFTA too. Mexican leaders are facing pressure of their own to stand up to the United States as Trump talks about building a wall between the two countries and Republicans in Congress mull changes to how the tax code treats imports. Renegotiating NAFTA — which has been discussed informally in recent weeks — has become a battleground for internal politics on both sides of the border.
“We are not going to accept just any renegotiation of [NAFTA], we would rather abandon it all together, and we have been clear about that with the United States,” Foreign Minister Luis Videgaray told members of Mexico’s congress on Tuesday, according to El Universal newspaper.
Mexican leaders had been meeting in recent weeks with administration officials, and had started to lay out the plans for an overhaul of the trade agreement. On April 20, Mexico’s finance minister, José Antonio Meade Kuribreña, met with US Treasury Secretary Steve Mnuchin in Washington for a “constructive” discussion about reworking the deal, according to a press release from the country’s ministry of finance.
Mexican leaders are under pressure to fight Trump
Mexican congress members are under intense pressure from the public to be more aggressive in their relationship with the Trump administration. This largely has to do with the border wall, which has been a blow to national pride. About 87 percent of Mexicans believe that building a wall along the border is an act of aggression against Mexico.
In response to public outrage, Mexico’s members of congress have been urging Videgaray, the foreign minister, to take action. At his meeting with them on Tuesday, Videgaray assured them that he made clear to the Trump administration that any negotiations on NAFTA should be based on the idea of free trade, meaning no quotas or tariffs on Mexican products going into the United States. In other words, he’d reject anything like a border adjustment tax, which would tax all products that businesses import into the United States.
Videgaray also suggested other ways that Mexico could take a hard line against the United States. He said Mexico would consider ending cooperation with the United States on the drug war (the Drug Enforcement Agency is allowed to conduct investigations in Mexico), and suggested charging a fee to American tourists who want to visit Mexico.
"If the negotiation on other themes — immigration, the border, trade — isn't satisfactory to Mexico's interests, we will have to review our existing cooperation,” he said Tuesday, according to the Associated Press.
So Mexico had already been making its own threats before news broke of the White House drafting an executive order to end NAFTA. Still, the country has made one thing very clear: Paying for the border wall will not be part of NAFTA negotiations.
Trump never intended to end NAFTA
After alarming the world with news about potentially ending NAFTA, Trump seemed to backtrack, saying in a Wednesday statement that he had “pleasant and productive” calls with the leaders of Mexico and Canada.
“It is my privilege to bring NAFTA up to date through renegotiation,” he said. “It is an honor to deal with both President Peña Nieto and Prime Minister Trudeau, and I believe that the end result will make all three countries stronger and better.”
It’s possible that Trump was really planning to scrap the deal, but it’s more likely that he was bluffing about withdrawing to get the upper hand in the negotiations.
Beatriz Leycegui, the former undersecretary of foreign trade for Mexico, says that the reported executive order was probably a move to “exert pressure” on Canada and Mexico to reach a deal soon.
“He probably felt the need to deliver something on NAFTA since his plan to repeal Obamacare didn’t go through,” says Leycegui, who is now a partner at SAI consultancy in Mexico City.
President Trump has been signing a flurry of executive orders as his 100th day in office approaches. The White House says he will have signed 32 executive orders by Friday, the most of any president since World War II. Trump clearly needs victories to boast about before the 100-day benchmark, particularly since he hasn’t had much luck working with Congress on his agenda. And he did promise to end or start renegotiating NAFTA before Saturday, so he will definitely say he’s made progress on that.
Millions of American jobs depend on NAFTA
Ending the trade deal with Mexico and Canada would seriously damage the American economy. It’s true that NAFTA has hurt American factory workers by enticing US companies to move factories to Mexico, where labor is cheaper. But millions of American jobs are also dependent on trade with Mexico, and Mexican corporations have created thousands of jobs in the US.
The US auto and machinery industries rely heavily on free trade with Canada and Mexico to build, assemble, and sell products. Mexico is also a huge export market for crops farmed in the United States.
New research from the Mexico Institute at the Wilson Center, a nonpartisan think tank based in Washington, DC, found that trade with Mexico creates approximately 4.9 million jobs in the United States. In other words, one out of 29 American jobs depends on preserving an economic relationship with the US’s southern neighbor.
Of course, Mexico’s economy relies heavily on free trade with the United States. Its northern neighbor buys 80 percent of Mexico’s exports, and millions of jobs in Mexico depend on NAFTA.
On Tuesday, Videgaray underscored the mutual benefits of the relationship. He also added that Mexico is currently negotiating stronger trade deals with countries in South America, Europe, and Asia, including those that were interested in forming the Trans-Pacific Partnership.
“We, as Mexicans, need to realize that Mexico is very important to the United States, and at the end of the day, it’s in the mutual interest of both countries to have a constructive relationship of respect and association,” he told members of congress, based on a recording of the meeting.
That’s with one exception: the wall.
“The wall is not part of a bilateral discussion, nor should it be,” Videgaray told members of congress Tuesday. “We are not going to collaborate, in any form, on the construction of something that hurts us, humiliates us, and which also appears to be a complete waste of resources.”