Five things to know about Trump and NAFTA

Talk is growing that President Trump could really pull the United States out of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. 

A fourth round of talks is taking place this week in Washington, and the negotiations seem surrounded by angst and gloom for those with the most invested in the pact’s future.

Canadian Prime Minister Justin Trudeau said his country would not walk away from the talks despite opposition to U.S. proposals, while in Mexico the value of the peso fell amid speculation that Trump might actually do the once-unthinkable and remove the U.S. from the 23-year-old deal he routinely describes as a disaster.

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U.S. business groups normally aligned with the Trump administration — and are in fact working with the White House on tax reform — have been in a public spat with the Office of the U.S. Trade Representative over the talks, while lawmakers in Congress are generally holding their fire. 

Here are five things to know about what’s happening. 

The talks have been rocky 

Trump has vowed to renegotiate NAFTA on terms that are better for U.S. workers and businesses, but some of his proposals have drawn opposition from business groups and seem unlikely to ever be accepted by Ottawa or Mexico City. 

As a result, there is increased anxiety that the three countries won’t be able to hammer out a deal, and Trump will terminate the trade deal after the planned seven rounds of talks are concluded at the end of the year. 

Behind the scenes, sources say that differences are growing, imperiling the prospect that talks will be successful. 

Trudeau and Mexican President Enrique Peña Nieto shrugged off the pessimism this week, saying they are committed to completing a comprehensive update of the agreement with the United States. 

But Trump was cavalier about whether the talks will end with a NAFTA deal in place.

“It’s possible we won’t be able to make a deal, and it’s possible that we will,” he said this week in the Oval Office, with Trudeau at his side. 

“In terms of the fairness of NAFTA, I said we’ll renegotiate. And I think Justin understands this: If we can’t make a deal, it’ll be terminated and that will be fine,” he continued. “They’re going to do well; we’re going to do well, but maybe that won’t be necessary. But it has to be fair to both countries.”

U.S. proposals are stoking tensions

Two contentious proposals from Trump are causing consternation for many U.S. businesses, as well as Canada and Mexico. 

The first is a sunset clause that would require the three nations to periodically vote to keep the deal in place or face NAFTA’s expiration in five years.

Critics of the language say including it would effectively end NAFTA, since its life would be hanging on a thread and businesses would no longer make investments based on the certainty of the deal’s trade rules.  

The U.S. also has unveiled a rules-of-origin proposal that would require cars and trucks to include a greater percentage of U.S. and North American parts to maintain coveted tariff-free access under the deal. 

Fights over U.S.-backed changes to the trade deal’s dispute settlement systems are yet another obstacle.

Tensions are high between Trump and business

Republican administrations and the U.S. Chamber of Commerce are generally aligned on policy issues. 

On NAFTA, they’re looking more like enemies.

The Chamber and Business Roundtable are among dozens of groups trying to convince the White House to rethink its NAFTA proposals. 

Chamber officials have called the Trump proposals “unnecessary and unacceptable” and “highly dangerous.”

The Office of the U.S. Trade Representative responded with a statement that described the Chamber as the sort of entrenched special interest group Trump is out to depose.

Changes advanced by Trump “will be opposed by entrenched Washington lobbyists and trade associations,” said spokeswoman Emily Davis. “We have always understood that draining the swamp would be controversial in Washington.”

Business groups say they have talked to more than 250 House offices, hoping to secure leverage with the administration. 

They say both Republicans and Democrats are concerned about Trump’s threats to withdraw from the deal and how such a move would harm the U.S. economy.  

Congress is watching warily

Republicans and Democrats on Capitol Hill are expressing concern about Trump’s repeated threats to leave the agreement if a reworked deal doesn’t better favor the United States. 

Trump could certainly attempt to scrap the agreement, but he may run headlong into a wall of lawmakers on Capitol Hill who would want to stop him amid already-frayed congressional alliances. 

Several lawmakers have argued that the Trump administration understands it must consult with Congress on trade. 

But that doesn’t mean the president would be averse to withdrawing, especially considering his track record. 

“I believe that Congress would want to have some input into that decision, since Congress ratified and approved that agreement,” said Charlie Dent, (R-Pa.), leader of the Tuesday Group of moderate Republicans in the House.

“We’d want to have a say in whether we’d exit it, particularly given the economic stakes in some states,” Dent said. 

Could Trump withdraw?

The president continues to float the possibility that the United States may terminate NAFTA if the negotiations don’t go their way. 

Business groups argue withdrawing would bring steeper tariffs, job losses and higher prices for consumers.

Withdrawing would also make it much less likely that any country would want to ink new bilateral trade deals with the Trump White House. 

That would further frustrate U.S. exporters that argue they have already lost plenty of ground while other nations forge new trade agreements. 

— Kim Dixon contributed