The what-if scenarios surrounding NAFTA
U.S. President Donald Trump has repeatedly threatened to terminate the North American Free Trade Agreement. While Congress would ultimately have to approve any White House move to withdraw from the quarter-century-old pact, Bennett Jones international trade group co-chair Milos Barutciski argues Trump can still choose to wreck the agreement entirely on his own.
Below, BNN looks at three ways Trump could move from threat to action.
1. Trump declares negotiations have failed and triggers withdrawal
In this scenario, the short term consequences for Canada would be severe despite the original Canada-United States Free Trade Agreement remaining in place. The move “would send shock waves through the Mexican economy and cause grievous damage to U.S. industry supply chains,” Barutciski told BNN via email. That will “almost certainly be reflected in both U.S. and Canadian capital markets,” he said, adding the impact will be far worse on the northern side of the border. “Think the U.S. gets a sniffle and we get the flu.”
2. Trump walks away from the table but holds off on withdrawal
Barutciski sees this as the more likely scenario, where the White House launches an “internal review” of the deal before making any decision on whether to terminate the agreement. “That may not provoke an immediate market response and will give [Trump] some time to recalibrate support and opposition,” Barutciski said. “President Trump has shown a propensity to squeeze an issue for all the leverage he can extract, and then move on to the next issue leaving the original matter unresolved and in a state of suspense.”
3. Trump decides to pause negotiations without declaring them over
This scenario carries the most risk, Barutciski said, as it would involve the U.S. president “recalibrating” and making a number of unilateral decisions such as imposing direct tariffs on Canadian dairy producers, Mexican trucking companies or any number of other products the U.S. brings in via its northern or southern borders. “These could be blatantly violative of NAFTA and would provoke a string of chest-beating, threats, panel reviews and retaliation by Mexico and Canada,” Barutciski said, pointing out it would allow Trump to say, ‘I told you this agreement is terrible’, and putting Congress in a corner. That scenario offers “plenty of red meat for [Trump’s] base and roils Congress on both sides of the aisle,” Barutciski said, “all while deferring a substantive choice.”