August 15, 2018

Trump talks tough on trade has at least one NAFTA member willing to play ball


President-electDonald Trump’s tough talk on trade appears to be paying off even before he formally takes office.

In the days since the results of Tuesday’s election, two-thirds of North American Free Trade Agreement trading bloc have already expressed interest in starting talks to renegotiate the landmark accord.

During the campaign season, then-candidate Trump made rewriting or withdrawing from NAFTA a pillar of his economic policy. Trump has minced no words in describing the agreement as a job killer and cause for wage stagnation in the U.S, as companies fled south seeking cheaper labor costs.

Just this week, Canadian Prime Minister Justin Trudeau, a staunch proponent of trade, announced his willingness to head back to the negotiating table, acknowledging that over time trade deals must be given another look to be sure they’ve advanced with the times.

“I think it’s important that we be open to talking about trade deals,” Trudeau said, adding he’s ready to revisit the terms, “If the Americans want to talk about NAFTA, I’m more than happy to talk about it.”

That appeared to isolate Mexico, which took a bit of a harder line.

Ildefonso Guajardo, Mexican Economy Minister said he’s ready to explain to President-elect Trump the “strategic importance” of NAFTA for the region. However, he stopped short of saying he’s ready to completely rewrite the trade agreement.

“Here we’re not talking about, renegotiating it, we’re simply talking about dialogue,” he added.

Mexico, Latin America’s second-largest economy, is the U.S.’s third-largest goods trading partner, with $531 billion worth of goods exchanged in 2015. Some 80 percent of their exports flow directly to the world’s largest economy, while 35 percent of their labor market depending directly on foreign trade.

Mexico’s Foreign Minister Claudia Ruiz Massie echoed that sentiment, saying “We think it is an opportunity to think if we should modernize it, not renegotiate it.”

Mexican President Enrique Pe퀱a Nieto took a more conciliatory tone, telling reporters he called Trump to congratulate him on his victory and share his readiness to work together.

“We both agreed that we have to work towards a relationship of trust, of a shared future because our countries are the highly important one to another,” PeÌıa Nieto added.

‘Betting on renegotiation’

President of Mexico Enrique Pena Nieto walks along U.S. Republican presidential candidate Donald Trump after a meeting at Los Pinos on August 31, 2016, in Mexico City.

Hector Vivas | LatinContent | Getty Images
President of Mexico Enrique Pena Nieto walks along U.S. Republican presidential candidate Donald Trump after a meeting at Los Pinos on August 31, 2016, in Mexico City.

“It’s just too early to say what changes would make President-elect Trump happy.”-Thierry Albert Wizman, Macquarie Bank

Eurasia Group’s Carlos Petersen suggested Mexico’s response was strategic, given Trump’s surprising victory and the need to smooth over what could be a rocky relationship with the U.S.’s neighbor to the south.

“Nieto’s response to Trump’s victory is the correct strategy. He has to strike a friendly tone. This is not the moment to be confrontational,” Petersen told CNBC.

Yet Mexico may not have much in the way of leverage, Petersen added. “The problem is that there is still high uncertainty and a lack of information on how much President-elect Trump will push on NAFTA revisions when he’s in the White House,” he said.

As President, Trump would have the authority to repeal NAFTA if the terms of the renegotiation aren’t to his liking. Under the rules of the trade pact, a party may withdraw from the agreement six months after it provides written notice of withdrawal to the other parties.

At least for now, few think that’s an immediate possibility. Macquarie’s Thierry Albert Wizman doesn’t think odds of a complete repeal of NAFTA are very high.

The newly elected U.S. president “can leave NAFTA completely, but that is unlikely to happen. So, I’m betting on a renegotiation.”

Juan Sartori, founder of Union Group warned that a full withdrawal from NAFTA would be “a disastrous deal for Mexico. The Mexican economy has been so reliant on the U.S. consumer.”

To be sure, the fallout would be felt at home, Santori said, estimating that costs for U.S. consumers would spike if the world’s largest economy withdrew completely from the trading bloc. With the U.S. absorbing so many of Mexico’s exports, the implications for both countries could be tremendous.

Trump has fulminated against trade but has yet to specify exactly which provisions of NAFTA he would find most favorable.

On the campaign trail, then-candidate Trump gave little in the way of specifics, instead arguing for “fair trade, not free trade.”

“It’s just too early to say what changes would make President-elect Trump happy,” said Macquarie’s Wizman.

–Seema Mody contributed to this article.


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