The NAFTA Negotiations: The geopolitical reshuffle and the risk of a lose-lose deal

Global Center Stage By Giovanni Coletta*

The NAFTA Negotiations

The ongoing NAFTA renegotiation are certainly part of reshuffling, and whatever the outcome may be, its implications will not just heavily affect the trade relations between the North America countries, but also the wider geopolitical theatre.

Of all the criticisms one might have about the current US administration, we cannot but acknowledge that Trump has unmasked a certain background of hypocrisy in contemporary international relations. It might be, in fact, psychologically reassuring to continue deluding ourselves with the liberal dream of a stable international order where the divide between good and bad countries is clearly set, but this is far from current realities of international politics. On the contrary, today’s political trends across the West underscore the fact that that dream has broken down against an economic recovery that has come though belated and timid. The established institutions in which the West had placed its hope and commitment are not perceived anymore as capable to address people’s issues or of accommodating people’s interests. The crushing of that dream has produced a bewildering and frantic reshuffle of established certainties, which reverse the trend of shared international efforts and shift it towards shared national efforts. In other words, Western countries today appear reluctant at financing and committing to international institutions and have decided to take the reins of their future into their own hands. Trump has expressed such a trend the hard way, due to his personal exuberance and his disruptive communication strategy, but he has simply uncovered an already stewing Pandora’s Box. The ongoing NAFTA renegotiation are certainly part of such reshuffling, and whatever the outcome may be, its implications will not just heavily affect the trade relations between the North America countries, but also the wider geopolitical theatre.

So, why has NAFTA been dropped? At first glance, the fact that the US pulled out of the agreement doesn’t look overly surprising considering Trump’s overall strategy. I will call it a ‘go-brake-result’ strategy. It seems, in fact, that we can identify a certain pattern in Trump’s policing so far, which often manifests itself with an initial incendiary statement — more often a tweet, a subsequent reassuring slowdown aimed at toning down the previous stance, and finally the achievement of the result which is often a compromise between the first and second stage. In other words, Trump’s ability simply consists of exploiting the chaos generated by contradictory statements and getting his hands on the prize while everyone still debates on his Twitter profile. Although the NAFTA affair is still in process, the same procedure seems to apply. In this instance, the apparent dismantlement of agreements perceived to be the symbol of past administrations depicted as not doing the US interests any good, seems to be fully consistent with Trump’s narrative of taking back control and putting Americans’ first. The harsh aversion towards Canada embodies the ‘go’ phase, in which the disruptive decision of ripping NAFTA off reflected not only the profound divide with Trudeau, but also a symmetric re-alignment with Mexico and its new President Obrador, who is due to be sworn in this fall. The ‘brake’ effort is carried out by the actual negotiators, who have been trying these past few weeks to soften the respective Presidents’ statements and reach a measured agreement, notwithstanding Trump’s invariably announced will to exclude Canada and replace NAFTA with the now agreed US-Mexico deal. While it is still too early to address the outcome of these negotiations, it projects clearly the US preference for bilateral agreements, on the assumption that negotiating directly with individual partners will prove more effective than participating at crowded tables where everyone’s interests will likely be diluted by compromises.

The thorny mantle of the negotiations has been recently de facto passed to the new Mexican President. Obrador has tried to reconcile with Trump after months in which the yeasty US-Mexico relations were dominated by issues such as ‘the wall’ and vitriolic accusations exchanged between Trump and Pena Nieto. However, that is easier said than done, considering how difficult a legacy Nieto is leaving behind. What many fear is that the hard approach adopted by Pena Nieto against Trump's claims might be replaced by a certain docility so far manifested by the Morena leader. Last July, Obrador sent Trump a letter in which he invited him to conclude the NAFTA negotiations and discuss a stronger cooperation with the US in terms of trade and other key issues such as migration and security. Although the letter explicitly mentioned Canadai, 5 days after the receipt Trump announced the possibility of a separate agreement with Mexico since he and Obrador were 'doing great'ii, and that an agreement with Canada would be reached at a later stage. While judging whether Mexico surreptitiously let that happen, silently stabbing Canada in the back, is a matter of interpretation (or journalistic investigation), the re-alignment between the US and Mexico suggests the two countries need each other and the NAFTA affair offered a chance to reunite. In fact, in Obrador's letter there is a direct reference to a proposed stronger effort to improve living and working conditions in Mexico and therefore keep the US-bound emigration down. This would of course offer a wider leeway for Trump to claim 'another' success in his immigration policy, and Obrador to achieve positive economic results. On the other side, Trump still needs Mexico as a fundamental partner, regardless of how tough he has been playing on it lately, and Mexico needs a renegotiated trade agreement to facilitate the aforementioned goals.

On the other side of the barricade, Ottawa has a much harder battle to fight. Anticipated by acrimonious mutual remarks (also manifested during the inconclusive NATO Summitiii last July), the political clash between Trump and Trudeau seems to have touched the point of no return with respect to NAFTA renegotiation, with Trump threatening to leave Canada out of the new agreement and Trudeau firmly not retreating against such harbingers of trade war. While the bilateral talks with Mexico largely aimed at striking a more advantageous deal for automakers – regarding which many warned against potentially severe backlashes for the industryiv, the tricky point for Canada remains the access to the dairy market. An inescapable issue, the dairy farmers represent a strong component of the republican consensus, but also an ‘untouchable’ backbone in Ontario and Quebec.v The question now is whether Trudeau will allow a reform of the dairy market to untangle the negotiation deadlock and likely expose himself to a wave of protests – just one year away from the 2019 federal elections. Trudeau has often repeated that ‘no deal is better than a bad deal’, conscious of the risks that threaten the dairy market and seems committed to protect the Canadian farmers. Jacques Lefebvre, CEO of the Dairy Farmers of Canada, recently argued that surrendering to Trump’s claims on a wider access to the domestic market “would result in wiping out a third of Canadian dairy farms in Ontario or in Quebec”vi – which, based on federal estimates, have already significantly shrunk from 11.280 in 2016 to 10.951 in 2017.vii Although recent Trudeau’s statements suggest he is not open to concede to any of Trump’s claims, he is likely to eventually be persuaded to accept a final agreement and contain the damages. However, both Trump and Trudeau know that whatever agreement will result from the ongoing negotiations, it will have to be ratified by the US Congress, and given that any agreement might not be reached before October and that polls show that looming mid-term elections will likely favour the Democrats, the fate of the trade deal is yet to be written. Trump himself admitted that Democrats are likely to take over the House, which may boost the perceived POTUS weakness and encourage Trudeau to procrastinate and call Trump’s bluff. If the upcoming mid-term elections will result in a ‘blue wave’ and tables were turned, Trudeau could certainly take advantage of a wider leeway to leverage on key issues.

Recently, the late Lord Palmerston’s adage that “nations have no permanent friends or allies, they only have permanent interests,”viii has been exhumed to stress how established and hitherto solid alliances such as the US-Canada can be quickly replaced when realpolitik calls for it. But it often comes at a high price, especially when politicians are too distracted by tactics to outline a forward-looking strategy. A lot is at stake on a geopolitical level, where the aggravating rift between the US and Canada is likely to cause potentially severe backlashes within NATO, but the stakes are high also for the North American relations. In this instance, the risk that such chaotic negotiations, which have undergone multiple stress tests, will result into a lose-lose deal is more probable than before. Although it is a matter of debate whether NAFTA itself was really advantageous for the US industry, it appears quite hard to imagine that the outcome of these negotiations will be any better. The fact that we still do not know what shape the final agreement will take after months of negotiations (will it be a ‘US-Mexico plus Canada’ deal? Will it be the sum of the US-Mexico and US-Canada deals? Will it be a trilateral agreement?), is it the best answer to whether bilateral agreements will prove more beneficial than NAFTA? Hardly so. The US may give the impression of taking back control by acting as the fulcrum of multiple single partnerships, but this will very likely weaken the system in the long run. And when the time comes, voters will be called to judge politicians’ work on economic results rather than political tactics.

References

i https://lopezobrador.org.mx/wp-content/uploads/2018/07/Traduccio%CC%81n-de-cortesi%CC%81a.pdf

ii Olorunnipa, Toluse & Leonard, Jenny, “Trump Says U.S. May Have Separate Trade Deal With Mexico”, Boolmberg, https://www.bloomberg.com/news/articles/2018-07-18/trump-says-he-may-agree-on-trade-deal-with-mexico-before-canada, 18 July 2018.

iii Coletta, Giovanni, “NATO Summit 2018: President Trump and the Lack of a Mediterranean Strategy “, Intelligence Fusion, https://www.intelligencefusion.co.uk/blog/nato-summit-2018-president-trump-and-the-lack-of-a-mediterranean-strategy, 23 July 2018.

iv An official report stated: “[Michigan’s] high concentration of engineering and automotive-related employment could be at risk to foreign countries if production shifts outside the NAFTA region”, warning that “Any move by the United States to withdraw from NAFTA or to otherwise restrict automotive vehicle, parts and components trade within North America will result in higher costs to producers, lower returns for investors, fewer choices for consumers, and a less competitive U.S. automotive and supplier industry. Counter to the incoming Trump Administration’s goal of creating manufacturing jobs the withdrawal from NAFTA or the implementation of punitive tariffs could result in the loss of at least 31,000 U.S. automotive and parts jobs”, (‘NAFTA Briefing: Trade benefits to the automotive industry and potential consequences of withdrawal from the agreement’, Center for Autmotive Research, January 2017).

v “SUPPLY MANAGEMENT: PROBLEMS, POLITICS –AND POSSIBILITIES”, The School of Public Policy – University of Calgary, Vol. 5, Is. 19, June 2012 )available at https://www.policyschool.ca/wp-content/uploads/2016/03/supply-management-hall-findlay.pdf)

vi Connolly, Amanda, “Got milk (farmers)? Here’s how many could be at risk if NAFTA boosts U.S. dairy market access”, Global News, https://globalnews.ca/news/4431314/nafta-donald-trump-canadian-dairy-market-access/, 6 September 2018.

vii “Canada's Dairy Industry at a Glance – 2016 Highlights”, Canadian Dairy Information Centre – Government of Canada, http://www.dairyinfo.gc.ca/index_e.php?s1=cdi-ilc&s2=aag-ail; “Number of Farms, Dairy Cows and Heifers”, Canadian Dairy Information Centre – Government of Canada, http://www.dairyinfo.gc.ca/index_e.php?s1=dff-fcil&s2=farm-ferme&s3=nb.

viii Kay, Jonathan, “Justin Trudeau Can’t Take Any More Humiliation”, Foreign Policy, https://foreignpolicy.com/2018/08/30/justin-trudeau-cant-take-any-more-humiliation/, 30 August 2018. Also, in Gartzke, Erik & Weisiger, Alex, “Permanent Friends? Dynamic Difference and the Democratic Peace”, available at http://pages.ucsd.edu/~egartzke/papers/impermanent_01022012.pdf

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