Trump NAFTA trade deal threatened by Democrats’ demands
President Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto are set to sign the renegotiated North American free trade deal when they meet on the sidelines of the Group of 20 summit in Buenos Aires later this week.
Fourteen months in the making and requiring more than 1,800 pages of text, the United States-Canada-Mexico Agreement (USMCA), as it has been formally labeled, has been heralded by negotiators as the centerpiece of the Trump administration’s new approach to international trade relations and a template for the raging U.S.-China trade war.
“It’s not NAFTA redone; it’s a brand-new deal,” Mr. Trump announced from the White House Rose Garden after the deal was struck on Oct. 1. But much remains before the deal goes into effect, and looming political changes in Washington and Mexico City could complicate what the partners had hoped would be a smooth and expedited process.
After the scheduled signing of the trilateral agreement, the pact moves to the incoming Congress for ratification, where Democrats will control the House of Representatives and have already said they want some changes to be made. More recently, conservative House Republicans have attacked certain provisions, including those on worker rights that many regard as international social engineering. Many economists also say that, despite Mr. Trump’s brutal rhetorical attacks on the original treaty and on Mexico’s large bilateral trade surpluses, the deal he negotiated is likely to fall short of many of his goals.
Rep. Bill Pascrell, the New Jersey Democrat who is set to be a key voice on trade in Congress, has openly said he wants changes.
“The jury is still out as to whether this deal meets my standard for a better deal for American workers,” he recently told Bloomberg News.
Eleven Senate Republicans wrote to Mr. Trump urging the administration to seek a vote on the renegotiated deal in the Republican-dominated lame-duck Congress. They warned that waiting until next year will make ratification “significantly more difficult.”
“We stand ready to assist in helping you secure a pathway to congressional consideration” in the lame-duck Congress, said the Republican lawmakers, organized by Sen. Patrick J. Toomey of Pennsylvania.
Still, support is flowing from high levels. Heavyweights from Ottawa and Mexico City who led the negotiations, including Mexico’s ambassador to the U.S., Geronimo Gutierrez Fernandez, advocating on its behalf. Supporters say the updated deal will preserve a free trade area that supports an estimated 14 million U.S. jobs and generates roughly $1.2 trillion in annual trade among the three partners.
“The deal that finally was nailed down was different from where we started the discussions,” Mr. Gutierrez said at a recent Brookings Institution briefing. “It is not perfect, but it works and, given the circumstances, that needs to be taken into account.”
The key to resolving disagreements, Mr. Gutierrez said, is to build “a broad coalition” of supporters alongside U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland, which included business sectors and academic analysts.
Highlights of the final pact include new rules for automobile production, reduced barriers for American exports to Canada and revisions to a tribunal for resolving disputes that arise under the pact. Irritants that remain include tariffs that the U.S. imposed on imports of Canadian and Mexican steel and aluminum.
New dynamic on the Hill
After a required waiting period, which includes a U.S. International Trade Commission report on the economic impact of the deal, Congress can consider the updated NAFTA deal.
When Democrats take control of the House of Representatives, Mr. Trump might need to secure support from more than 30 members of the rival party, giving them a chance to leave their stamp on the agreement.
Although no major changes can be made to the 34 chapters of text, Congress can effectively determine the level of enforcement of certain provisions.
Securing those Democrats will take some serious behind-the-scenes deal-making.
“We will see objections in the new Congress,” said Earl Anthony Wayne, a former U.S. ambassador to Mexico. “But it is also important to remember that this is not just going to be a vote about the merits of this new treaty. There will also be political calculations about how the Democrats want to treat this.”
Senior House Democrats in line to play key roles on trade policy, led by likely House Ways and Means Committee Chairman Richard E. Neal of Massachusetts, have already planted some markers.
A major issue, they say, is imposing stronger, more enforceable labor standards, in particular those mandating that Mexico do more to allow the creation of independent unions. The AFL-CIO has argued that Mexico can dodge economic penalties if it violates labor measures in the USMCA and Washington does not punish the transgressions.
“The bar for supporting a new NAFTA will be high,” Mr. Neal said this month.
House Minority Leader Nancy Pelosi, likely the next speaker, has expressed similar concerns, as has Mr. Pascrell, who is positioned to take over the influential Ways and Means trade subcommittee.
While no key House Democrats have demanded a reopening of negotiations at the highest level, the White House has taken their threats seriously enough to schedule a meeting for the leadership next week with Mr. Lighthizer.
Another significant hurdle recently appeared in the House when 40 members of Mr. Trump’s own party condemned a provision requiring increased workplace protections regarding “sexual orientation and gender identity” issues.
“A trade agreement is no place for the adoption of social policy,” the Republicans said in the letter sent to the White House this month. “It is especially inappropriate and insulting to our sovereignty to needlessly submit to social policies which the United States Congress had so far explicitly refused to accept.”
A revolt of 40 House Republicans against the deal would mean as many as 50 Democrats would be needed to pass it.
A well-oiled relationship
As companies across the world continue studying the hundreds of pages of the USMCA’s legalese, economic factors will continue to drive the agreement’s destiny, former officials say.
“A lot of jobs are riding on this,” Mr. Wayne said. “The prosperity of farmers and companies. Our competitiveness in the world. These are all very much affected by having certainty over a well-oiled relationship between the three countries.”
Some believe the House Democrats will likely come around. While they may be reluctant to hand Mr. Trump an economic victory, they could be more worried about entering the 2020 election cycle being seen as the party that kills job growth and prosperity.
The steel and aluminum tariffs that the Trump administration imposed on Canada and Mexico could also be soon solved, Mr. Gutierrez said.
The tariffs, some say, are among the best cards in Mr. Trump’s negotiating deck, but he will readily surrender them to preserve the overall deal.
Last week, a coalition of 34 business groups, included the U.S. Chamber of Commerce, the American Chemistry Council, the National Retail Federation, and the Alliance of Automobile Manufacturers, urged the president to do just that.
While backing the updated trade deal, the coalition said the Section 232 tariffs on steel and aluminum have caused significant harm to the U.S. economy.