Cautious optimism is in the air after the sixth round of NAFTA (North American Free Trade Agreement) negotiations drew to a close in Montreal on Monday. Though underlying tensions remain, American, Canadian, and Mexican officials have agreed that some progress had been made–with US chief trade representative Robert Lighthizer stating “We are committed to moving forward. I am hopeful progress will accelerate soon”.
But with two final rounds of negotiations ahead, an agreement between the three parties remains a distance away. Some of the US’ concerns relate to fixing its trade deficit with Canada and Mexico and providing more manufacturing jobs at home. Lighthizer also criticised the slowness of the negotiations, claiming that it will only add to the uncertainty of NAFTA’s future. He also positioned President Trump’s views as pivotal to the outcome of the negotiations.
One of Trump’s primary foreign policy concerns is trade. Trump believes that the US has suffered for years at the hands of agreements advantaging its trading partners. NAFTA–a conspicuous symbol of Trump’s review of international trade policy–faces termination if the US fails to reach a NAFTA agreement that puts ‘America First’. Trump has already stated that NAFTA represents “one of the worst deals ever made”, although some Republicans have attempted to urge the US President to reconsider his stance on the regional trade agreement. Will Mexico and Canada need to succumb to the demands of Washington if NAFTA is to survive?
Trump’s hostility towards NAFTA signals a dramatic departure from America’s global image post-1945. Emerging during a period of ever-growing US geopolitical dominance, NAFTA was conceived with the hope of achieving equal prosperity. This free trade agreement has deeply integrated the economies of the three countries since its launch in 1994, when then President Bill Clinton described NAFTA as “just a first step” in regional cooperation. Clinton also stressed the significance of the US as a global power and promoter of free trade in the post-Second World War era.
In its twenty four year life, NAFTA has epitomised the liberal capitalist status quo–and despite the odd criticism and talk of amendments, was ultimately supported and maintained by both the George W. Bush and Barack Obama administrations. A continuation of the US-Canadian Free Trade Agreement signed in 1988, NAFTA’s central purpose was the elimination of most tariffs on goods and services that were traded between Mexico, America, and Canada. The aim was to generate economic growth and competitiveness for the three countries while providing opportunities for Mexico’s economy to flourish. For Mexico, NAFTA was a welcome agreement in a time of economic depression–and it ultimately transformed the country from one of the world’s most protectionist to one of the most open.
Canada enjoyed similar benefits since joining NAFTA. Foreign investments from the US and Mexico in Canada have tripled and Canadian exports to its American counterpart are now three times as large than before the free trade agreement, making the US Canada’s biggest trade partner.
For the US, the aim was to strengthen its economic might during changing times and gain bipartisan support. Due to global developments–such as the increase in Japanese productivity and the development of the EU–pressure mounted on the US to up its game. One of the main developments to emerge from the agreement was the ability for US firms, such as those in the auto industry, to move their operations across the border. There, labour was cheaper, while firms could provide goods at lower prices and more jobs–thus enhancing competition. National security was another driving force behind the creation of a free-trade zone between North America and Mexico. By creating new jobs and opportunities for Mexicans, the hope was it would discourage illegal migration and contrabands–while strengthening democracy south of the border.
Today, discontent with NAFTA is in part down to nationalism in both the US and Mexico. In recent years resistance against the neoliberal order and its perceived shortcomings has been on the rise–with even the IMF raising concerns about its potential to cause inequality. In turn, Trump’s solution–economic nationalism and ‘America First’ rhetoric–has let loose the anti-globalisation sentiment which has been simmering in American society. Impending changes to NAFTA symbolise this changing political climate.
The story in Mexico is (curiously) similar. On July 1, Mexicans will go to the polls to elect a new candidate in what appears to be a quintessential nationalist versus globalist election. Populist-nationalist Andrés Manuel López Obrador (known as AMLO) is currently leading in the polls with significant support for his ‘Mexico First’ mantra and opposition to NAFTA and the US. Like Trump in 2016, AMLO has campaigned against ‘neoliberalism’, blaming it for Mexico’s downfalls and claiming that under his leadership national production would be prioritised.
Political uncertainty in Mexico leaves its stance on NAFTA equally up in the air; one of the reasons why negotiators are anxious to wrap up talks quickly. But a conclusion doesn’t feel within arm’s reach. Washington’s main aim is to reduce the trade deficit with Mexico: Trump sees cheap imports as contributing significantly to the loss of jobs in the US, and wants to create tariffs on imports to prevent this. NAFTA was created as a tariff-free zone and tariffs on its exports are exactly what Mexico is fighting against–at least for now. This position could easily change if AMLO is elected, although confusingly his populist rhetoric differs from that of his party: this year his Morena party launched the 2018-24 platform with the aim of establishing better relations with its American neighbour.
But where does Canada stand? With billions of dollars of good business under threat, especially from its American neighbour, Canada filed a formal complaint with the World Trade Organisation (WTO) in December. The outcome of the WTO’s ruling could affect the way Washington will be able to conduct business looking forward. With a string of trade disputes, Ottawa seems intent on standing firm in the face of this newly protectionist environment. Washington’s reaction was bitter at best, as Robert Lighthizer expressed with his overt criticism of Ottawa. Lighthizer claimed Canada’s WTO complaint “constitutes a massive attack on all of our trade laws” and he clearly threatened the US would lower Canadian imports if the WTO were to rule against them. But Canada is not sitting idle: from signing onto a new Trans-Pacific Partnership, alongside Mexico, to launching its trade deal with the European Union, it is clear that the country is preparing for the possibility of a NAFTA collapse.
In his closing statement during this round of negotiations, Robert Lighthizer gave the green light for two more rounds of talks. At present, buying time seems to be the only real progress taking place. But if US demands are not met, it seems unlikely that the Trump administration will hesitate to bring down the free trade agreement. In the words of Lighthizer, “We of course have a five-hundred billion dollar trade deficit. So for us, trade deficits do matter. And we intend to reduce them”. An America First, Mexico First future may be on the horizon.