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Are NAFTA Renegotiations Likely?

Are NAFTA Renegotiations Likely?

Incoming US President, Donald Trump, has made NAFTA renegotiations a central plank in his campaign platform. But how likely is it that dramatic changes to NAFTA will occur in the near future? While some believe NAFTA must go, others have pointed out the inter-connectedness of the North American economies and how difficult dismantling or drastically renegotiating the agreement would be.

What is NAFTA?

The North American Free Trade Agreement (NAFTA) was implemented in 1994 during the Clinton presidency. All three North American countries – the USA, Mexico, and Canada – signed on in the interest of reducing bureaucratic and tariff challenges small businesses faced when buying and selling abroad. Virtually all tariffs between North American countries were eliminated or reduced as a result of the agreement which established one of the world’s largest free trade zones. The benefits of the agreement has been debated for many years.

NAFTA Renegotiations: The US Perspective

There is mixed sentiment in the US regarding the kind of NAFTA renegotiations Donald Trump and many of his supporters are advocating. Many in the US fear NAFTA has contributed to a flow of jobs from the US to Mexico. Yet the US Congressional Research Service concluded in 2015 that the overall impact of NAFTA on the US was negligible. In a statement, the Service pointed out:

“In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters…The net overall effect of NAFTA on the US economy appears to have been relatively modest, primarily because trade with Canada and Mexico accounts for a small percentage of US GDP.”

While candidate Trump made mention on more than one occasion of scrapping the agreement altogether, President Trump may quickly come to learn that trade relations between the US and its neighbors are far more complex and mutually beneficial than often reflected in political rhetoric. As such, formal NAFTA renegotiations may be unlikely unless supported by the other two member nations.

Canada and Mexico Weigh In

Canadian Prime Minister Justin Trudeau, a staunch proponent of trade, has indicated he would be open to the possibility of NAFTA renegotiations if the US made such a push. He left the possibility open by pointing out that even the best of trade deals occasionally need to be modernized. Last November, he commented on the question:

“I think it’s important that we be open to talking about trade deals…If the Americans want to talk about NAFTA, I’m more than happy to talk about it.”

Mexico, on the other hand, has been quite opposed to the possibility. Some 80% of Mexican exports flow directly into the US, and Mexico is the 3rd largest trading partner with the US. In 2015, the two countries exchanged approximately $531 billion USD in goods. While Latin America’s 2nd largest economy has indicated they are open to discussing NAFTA, NAFTA renegotiations would likely not be considered at present. Their Economy Minister Ildefonso Guajardo stated categorically:

“We’re ready to talk so we can explain the strategic importance of NAFTA for the region…Here we’re not talking about… renegotiating it, we’re simply talking about dialogue.”

Whether or not President Trump will continue to push for full NAFTA renegotiations remains to be seen. But if he does, such negotiations will likely not materialize for some time, due to Mexican opposition, lack of Canadian zeal, and mixed emotions in the US.

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