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Is NAFTA Going To End?

In mid-2018 negotiators from Canada, the US, and Mexico appear to be making progress on a deal to update the North American Free Trade Act (NAFTA). But as Trump continues to insult Mexico on Twitter and insist on building a wall along the Mexican border, even as the NAFTA discussions continue there is more uncertainty about the deal than at any point in the last two decades.

While Canadian Prime Minister Justin Trudeau says he prefers to look for mutually beneficial ways to update the current NAFTA framework he’s also hinted that he is willing to sacrifice Mexico and the NAFTA framework in order to protect Canada’s economic future. “We are ready for anything and we will continue to work diligently to protect Canadian interests. We are very aware that there are other potential paths out there, we will address them as they arise,” Trudeau said while in Washington after a meeting with Trump in October, 2017.

On October 12, 2017 Trudeau met with Mexican president Enrique Peña Nieto in Mexico City. Later during his visit with Mexico’s Senate Trudeau tried to assure his hosts that he wanted to work with Mexico to preserve NAFTA. He said, “we must pursue trade agreements that are win-win-win, helping workers across North America achieve better standards, wages and working conditions."

Still, Mexican politicians seem to be aware of the fact that NAFTA’s days may be numbered. If Trudeau is willing to engage in bilateral trade talks with Trump, Mexico can’t count on Canada to help it fight to convince Trump of the trilateral deal’s value.

Former Mexican ambassador Arturo Sarukhan explained that, “Some of us in Mexico think that on several occasions our Canadian friends have come close to throwing us under the bus."

Overall Canada sends less than 2% of its exports to Mexico. Mexico sends about the same percent of its exports to Canada. Like the U.S., Canada maintains a sizable trade deficit with Mexico. While Trudeau has said that he wants to work to solidify and enhance Canada-Mexico relations there doesn’t seem to be much of a chance that Canada and Mexico will soon become powerful economic allies.

Mexican politicians, unlike Trudeau, are already taking a much more hostile tone with Trump. If the NAFTA framework can’t be preserved it makes sense for Mexico to simply walk away from the negotiating table. While Canada can try and preserve its current trade relationship with the U.S. it makes more sense for Mexico to insist that if Trump is going to reject the NAFTA framework and pursue a one-on-one relationship with Mexico that those bilateral talks involve trade, security, organized crime, migration and the border wall all at the same time.

Tony Payan, the Director of the Mexico Center at Rice University, recently explained that “Trump is a man without a plan.” We still don’t know whether Trump is just bluffing or whether he’s really going to end the NAFTA era. We do, however, know that Trump seems to see deals as transactional and trade as zero sum, involving only winners and losers.

If Trump insists on playing rough the talks may stall. After all, it’s less likely that Trump will be able to extract victories on the relatively arcane details of trade and cross-border manufacturing if Mexico starts putting cooperation on security and Central American migration on the table as bargaining chips.

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