Posted by on October 16, 2017 3:35 pm
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Categories: Americas Boston Consulting Group: canada Canada–United States trade relations Congress donald trump Economy Economy of North America Free trade agreements of Canada Heritage Foundation House Ways and Means committee Mexico Motor & Equipment Manufacturers Association North American Free Trade Agreement Politics Presidency of Bill Clinton U.S. Chamber of Commerce Washington D.C.

Trump’s NAFTA negotiators in recent days put forth a string of bold proposals on everything from auto rules of origin, a sunset clause, government procurement, and gutting dispute panels seen by the other nations as core to the pact. The moves were long-signaled, as was Canadian and Mexican opposition to them, but with a more aggressive stance taken by U.S. negotiators in the 4th round of talks, which will continue today in Washington D.C., many are beginning to question whether a deal is ultimately feasible.  Per Bloomberg:

The fourth round of Nafta talks will continue Monday at a Washington-area hotel, before a ministerial-level meeting on Tuesday. People familiar with the proceedings describe essentially a two-track process: legitimate progress being made to modernize the pact in less contentious areas, including topics like regulations and services, with essentially no progress on the most divisive U.S. proposals.

Nafta’s fate may now hang on how flexible the U.S. is about its demands heading into the fifth round of talks, scheduled for Mexico City around the first week of November. While the parties had wanted to reach a deal by December, officials familiar with the negotiations say the talks are likely to drag on for months.

Of course, hanging over the negotiations are Trump’s regular threats to walk away.

One official familiar with the proceedings, who wasn’t authorized to speak publicly, said on Sunday that it seems more likely Trump will give the mandatory six months’ notice required to leave Nafta, though not necessarily end up backing out. Others were less sure.

“He’s unpredictable, so I don’t know,” said Stephen Moore, a senior economic adviser during Trump’s campaign and chief economist at the Heritage Foundation. “I do feel, though, that his bark has been worse than his bite on trade. That doesn’t mean that he’s retreating. But I think we’re going to see a Nafta 2.0 that will find areas that will give the U.S. even greater benefits, while protecting American workers.”

Mexico has signaled that it won’t negotiate during the six-month window if Trump announces he’ll walk away, and it’s unclear what the next steps would be were that to happen. Congress and others are vowing legal and political fights if the president tries to pull out. If Trump manages to, though, Canada could still fall back on an existing bilateral deal with the U.S.; Mexico has no such previous deal.


That said, as Richard Neal of Massachusetts, the top Democrat on the House Ways and Means committee, said over the weekend, a full withdrawal from NAFTA would require a vote from Congress…a hurdle which Trump has had some difficulty clearing in his first 10 months in Washington D.C.

The proposals have spurred public warnings from prominent U.S. lawmakers and the private sector about the perils of scuttling a deal that over more than two decades has broken down trade barriers, including tariffs, for industries like manufacturing and agriculture.

Warnings are growing from Congress. Richard Neal of Massachusetts, the top Democrat on the House Ways and Means committee, said he prefers a Nafta renewal to a pull-out, which he said Congress would probably block.

If Trump “even suggests that the United States should leave Nafta, to undo that relationship, you would have to go back to Congress. And that would be a much more difficult task for him,” Neal said in a Canadian TV interview with The West Block that aired on Sunday.

The U.S. Chamber of Commerce has issued its own warning. Last week, Chief Executive Officer Tom Donohue visited Mexico City and pledged to fight “like hell” to preserve Nafta. The largest American business lobbying group plans to send an “army” of representatives to Capitol Hill to demonstrate support for the deal, Donohue said.

Of course, as Boston Consulting Group pointed out in a recent presentation to the Motor & Equipment Manufacturers Association, any success in imposing tariffs on imported parts could mean large price increases for American consumers as roughly $2,000 worth of content on each U.S. assembled car is sourced from Mexico.

Meanwhile, Mexico is just one small component of a truly global automotive supply chain with $3,500 worth of imported parts on each car assembled in U.S. plants.

For those reasons, Mexico’s negotiators said they’re still optimistic a deal can be reached because they expect pushback from the U.S. private sector.

Here is the full presentation from Boston Consulting Group:

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