Goldman Expects Trump To Withdraw From NAFTA, Congress Readies For A Fight

Tyler Durden's picture

With NAFTA negotiations going badly, Goldman Sachs has published a report, “Thoughts on the Potential US Withdrawal from NAFTA”, that concludes that the US is likely to withdraw from the trade agreement next year “At this point, efforts at revising the agreement look likely to be unsuccessful, though a deal is still possible, in our view. If the talks do not result in a revised agreement by early 2018, we believe that the Trump Administration could announce its intent to withdraw from NAFTA.” The NAFTA agreement calls for a six-month notice period before a nation can withdraw and “we believe it would follow a similar pattern to the strategy the White House has used in recent decisions on immigration (the DACA program), Iran, and health subsidies. Each involved a disruption to the status quo pursuant to a campaign pledge, with delayed implementation and an expectation that a new arrangement might be negotiated in the interim.”

Trump has threatened to pull out of the pact several times if “America First” demands are not met. Following an unsuccessful fourth round of discussions, the parties have accepted that end 2017 timeframe for reaching agreement will no longer be achieved and talks will extend into Q1 2018.

According to Goldman, major sticking points in the talks are:

5-year sunset: The US has proposed that NAFTA would be terminated after 5 years unless all three parties agree to keep it in force. As a practical matter, this would result in a prescheduled renegotiation every ?ve years and increase uncertainty while the agreement is in effect, decreasing the bene?ts of the agreement on investment and cross-border trade ?ows.


Chapter 19: NAFTA allows member countries to settle anti-dumping and countervailing duty disputes through binational arbitration, which has been a priority for Canada in particular.  The US has called for Chapter 19 to be non-binding.


Investor-state dispute settlement (ISDS): The US has called for the ISDS program to exist on an opt-in basis. ISDS allows companies to seek recourse against policy changes in NAFTA countries that infringe on property rights, such as expropriation of assets.


Government procurement: The Trump Administration is seeking “dollar for dollar government procurement, which would mean that Mexican or Canadian companies could bid on US government contracts equal only to the amount of Mexican or Canadian contracts open to US companies. This would reduce the amount of US government contracts open to NAFTA partners to a fraction of the current amount.


Rules of origin: NAFTA currently requires auto imports to include at least 62.5%n regional content, i.e., parts from NAFTA countries. The Trump Administration has proposed raising this threshold to 85%, and requiring 50% US content.  These levels seem unattainable, in our view, since the US applies only a 2.5% tariff on cars imported from outside NAFTA, and with such high content requirements auto companies would be better off paying the tariff instead.

While Goldman acknowledges that some of the demands might be merely part of a negotiating strategy, it cautions that some of them are of a binary nature, with little room for compromise versus the current agreement.

It sees three reasons for expecting the talks to fail:

First, the recent proposals suggest that the Trump Administration is not concerned about the possibility of a failure to revise the agreement.


Second, an announcement to withdraw from NAFTA would be in keeping with the strategy the White House has recently followed on other issues.  The Administration’s recent decisions regarding the Iran agreement, the DACA program, and ACA subsidies have followed the same pattern: The White House has announced that it will end the status quo, against expectations, but that it will allow for an interim period where a new arrangement could be negotiated.  In these examples, the White House has left Congress with the responsibility for establishing a replacement.


Third, it is far from clear that there would be suf?cient support in Congress to pass a revised NAFTA agreement at this point.  We believe most trade-skeptic lawmakers might not want to be associated with even a revised version of the agreement, and most pro-trade lawmakers might prefer the status quo, although they might be more supportive of a revised agreement if the US has already announced a withdrawal from NAFTA.

On that basis, it expects the White House to give notice of US withdrawal.

Meanwhile, the risk of a US withdrawal is galvanising efforts by Congress and the business sector to thwart Trump if he does, indeed, serve notice. A legal challenge is thought to be certain from both sides of the House and the auto industry. As the WSJ notes  “Congressional trade lawyers and attorneys from private firms in Washington have begun meeting informally to come up with ways to challenge any decision by President Donald Trump to pull out of the North American Free Trade Agreement.”

While contingency planning is in its early stages, the WSJ acknowledges that it has thrown up a critical question“ How much authority does the president actually have to scuttle an existing trade agreement? ‘This is sort of uncharted territory where no one really knows,’ said Warren Maruyama, a former trade official in the Reagan and two Bush administrations…Mr. Maruyama agreed that the president probably has the power to cancel or gut Nafta, but he expects challenges—with a chance of success—if Mr. Trump attempts to kill the deal unilaterally. “There are people who are desperately scouring [key provisions of trade law] on Capitol Hill and law firms and at the U.S. Chamber of Commerce right now to try to create some kind of argument that Trump can’t do this,” said Mr. Maruyama, now partner at Hogan Lovells LLP in Washington.”

The potential avenues for challenging a withdrawal appear to be twofold, either on the basis that it is unconstitutional, or that a President can’t reverse laws which were passed by Congress with regard to its implementation. Should Trump serve notice, any parties, such as lawmakers or businesses, with standing could seek an injunction in a Federal court. If that fails, the WSJ reports that Congress could still take further measures to exercise leverage over the White House “The Congressional Research Service said in a 2016 report that a final notice of withdrawal from the president ‘appears sufficient’ to release the U.S. from its international obligations under Nafta, but that Congress might wield a variety of powers to dissuade a president from canceling the deal, including through its control over the budget. Congress in theory could also pass a law reinstating Nafta or a similar agreement, but lawmakers are divided on the issue and unlikely to advance legislation protecting a trade agreement, especially if they don’t have a veto-proof majority.

For a moment, let’s assume that the US leaves NAFTA, what would it mean in economic terms?

Goldman explains that besides short-term uncertainty if the US does withdraw from NAFTA, Goldman predicts that the economic fallout will likely be relatively modest.

A NAFTA withdrawal announcement would create near-term uncertainty but would likely have relatively modest economic effects, as the US-Canada trade would be likely to be covered under a prior free trade agreement, and exports to Mexico constitute only 1.2% of GDP. Most estimates of the trade gains from NAFTA suggest that it raised the level of US GDP by less than 0.2%, and some of these gains might have occurred anyway as Mexico has substantially lowered tariffs for non-NAFTA countries since the deal was implemented. That said, tariffs would rise, non-tariff barriers would increase, and some industries could face more substantial disruption. The auto sector would be most affected, as tariffs on some vehicles are still quite high outside of trade agreements and supply chains have been integrated across borders.  Agricultural trade, while not as large, would face important constraints given high protective tariffs on certain products.”

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nmewn's picture

Behold the power of a fully operational Death Star. 

espirit's picture

Fuck the DimRINOpugs.

Crossbreed motherfuckers.

YUNOSELL's picture

Fuck Goldman -- they don't say what they think, they say what they've bet on and hope to influence the muppets with

Gaius Frakkin' Baltar's picture

It seems corporations who fight repeal might suffer the same fate as the NFL.

Just something to think about...

philipat's picture

If, as according to The Squid, the impact of cancellation of NAFTA would be so small, 2 questions arise:

  1. What was the point of NAFTA in the first place?
  2. Why bother wasting time and resources cancelling it now?

As an example, a 2.5% tariff on a $30K car is $750 per car. I have no data on the marginal labor cost of car between The US and Mexico but it is a highly automated industry so if it gets anywhere close to that there might be a "giant whooshing sound" of jobs returning to the US. Yes, JOBS, but of course Goldman doesn't even think about that hence their conclusions.

TheMexican's picture

They say and do what ever it takes to make money. No matter how immoral, unethical or unlawful. And... they never get prosecuted... they just pay fines with other people's money.


jimmy c korn's picture

Maybe all this stress will cause McCain to retire.

Winston Churchill's picture

Stroking out would be more permanent, if its PPV I'm in.

nmewn's picture

Hopefully cancer spreads to the rest of McCains brain before the vote is held.

. . . _ _ _ . . .'s picture

Canada gets to keep its water.

nmewn's picture

And your annoying superiority complex. 

So, does a Canadian sniper still hold the record for the longest kill shot in Afgoneeestawn or has someone else topped it? ;-)

. . . _ _ _ . . .'s picture

I think the WR went to a Brit., but it was a windless day. ;)

. . . _ _ _ . . .'s picture

It did, but seems to have been taken back by us Canucks in Iraq in May, 2017.
The new record beats no#2 by over 1,000 yards at 3,871 yds. What's that, like 2 1/2 miles!!

No wonder we feel so superior!

Interesting but two of the top ten shots on Wikipedia's list were by Americans... in the 1800's!

nmewn's picture

Windage & elevation, it never goes out of style. 

Fiat Currency's picture

Canadians hold 3 of the top 4 sniper records - including #1.

nmewn's picture

Now, are those records for killing "brown people"? 

I'm such an asshole sometimes ;-)

Fiat Currency's picture

I don't discriminate - because I don't care what colour you are if you step on my 600 acres uninvited ;-)   TRIPLE S - shoot, shovel & shutup (although pigs work better than shovels)


nmewn's picture

It was moar directed toward the "YOU ARE KILLING BROWN PEOPLE!" social justice warrior idiotic progressive crowd than you personally. 

But I think you already got that ;-)

Davidduke2000's picture

AS a Canadian I will be more than happy to get rid of nafta, it was concocted when China was not in the decor, now we can export everywhere in the world and we can keep our oil and water. 

DuckDog's picture

Being a Canadian, Trump is going to get what he wants, our Government and I'm not lying is trying to get Feminist concessions and Gender Pronouns added to NAFTA, I ain't lying about this... we're so screwed up here

Peak Finance's picture




Trump is making fools of these guys.

Giving everyone a ton of time to negotiate all of this stuff,  work something out, make a deal, BUT, these fuckers are so used to having their OWN WAY Every single fucking time, they stamp their little feet and run away from negotiations, not believing that Trump will ACTUALLY KILL the deal, which of course he will, making these guys and all of congress look like fucktards in the process. 

Davidduke2000's picture

actually we no longer import anything from the us, nor sell anything to the us. trump is isolating america and the americans would soon can no longer afford anything with all the tariffs he is imposing on imports, they have to start eating dog food like during the reagan era.

Peak Finance's picture

Dude, WTF?

Canada sells TONS and TONS of stuff in the US. When I need bulk lumber I import it directly from Canada. That's just me personally, I also understand they sell us gold, oil, gas, lumber, syrup, hockey pucks, Beaver Pelts, etc. 

Gaius Frakkin' Baltar's picture

They're hoping Trump is a fluke and by some weird cosmic occurrence the politics of the last few decades comes back into style.

So it's all about stalling and resisting, much like Brexit.

Mena Arkansas's picture

Of course Congress does not support the repeal of NAFTA.

That might actually benefit what's left of the middle class instead of their globalist paymasters.

Nekoti's picture

These con-gress critters are really showing their true colors. They don't even try to hide it. Same with Obummer care. Repeal was all the preached. Now that they have all three branches, they just can't seem to kill it.

ThreeRs's picture

The Republican Establishment is doing everything it can to become the minority party once again.


What's not to love? You don't have to do anything but oppose something in between vacations and you can promise the voters the moon because you know it won't get done.


7 fucking years these bastards lay around the swamp, sunning themselves on big flat rocks, doing nothing but lying to the people they were elected to represent.


Yeah, I'm a little pissed. I worked hard for that money they took out of my weekly pay. They go on vacation, every quarter.



ThreeRs's picture

Think about this now: if all US Americans came together in such numbers to overcome such voter fraud as we've never seen before and put Trump in the White House, we can damn sure come together and get rid of the Globalists. Both Parties.


2018's right around the corner.


Let's fuck with those Globalists' heads.

JoeTurner's picture

NAFTA has been an absolute disaster for the middle class. Cheap clopper at Walmart is not that useful if you are permanently unemployed.

Davidduke2000's picture

nafta benefited the us more than Canada and Mexico, good riddance if trump take it away, we lost all our car manufacturing in Canada because of nafta

Ajax-1's picture

Well then, let's get this party started. If what you say is true, Canada and Mexico should be supporting Trumps efforts to scrap NAFTA. In reality, your assertion is not true. Mexico and Canada are insisting that NAFTA remains in place as it is currently written.

Heroic Couplet's picture

But, but, but, Goldman Sachs was there when Bill Clinton agreed to NAFTA. Robert Rubin, anyone? Let's get rid of Goldman Sachs. If 49 other states don't have Goldman Sachs, New York State doesn't need it either.

shovelhead's picture

How will this affect the Mexican mud wrestling porn industry?

Jethro's picture

Probably put downward pressure on pricing.  Mas luchodores!

Dickguzinya's picture

Do it President Trump.  Abolish this anti-American drek.  The worm is turning, and America is back on the right track.  Unfortunately, we have many treasonous reprobates thwarting his every move.  God Bless America, protect us from our enemies, foreign and domestic.

ThreeRs's picture

God Bless America

and show US all a path to help the President kick the shit out of the Globalists. Both parties.

Rolln's picture

What is Goldie trying to sell us here?

ThrowAwayYourTV's picture

Man I truly love this guy. So tired of the old royal asses running this country like their very own private club house.

haruspicio's picture

He's a fucking blowhard idiot.

ThreeRs's picture

I can see you're the expert in fucking blowhard idiot.

Dickguzinya's picture

And you're the shit stain on the toilet that just doesn't go away, no matter how many times you flush the toilet.

MuffDiver69's picture

What he will do if the first bluff doesn’t work is invite Congress to step in and save the day as he withdrawals and the Globalist will be exposed for all to see.. ..For the rest of us we get it and watching the Congress have to do its job like ACA subsidies,Iran recertification and this, well, you can’t hide anymore assholes..Priceless shit watching this go down...

lester1's picture

Anyone supporting this cancerous NAFTA is a traitor to our nation and should be hung!

Versengetorix's picture

It's hanged. But I agree with the message.

helloimjohnnycat's picture

It's always been their game with our money.

" Behind every dollar is a joo. "

End the Fed; send the joos packing.


tripletail's picture

I'd like to be wrong --- but until it happens, for real, I don't believe Trump can successfully nullify NAFTA. As is typical with all politicians, to include Trump --- I see the old red meat/betrayal switch being played out to perfection. Again, I hope I'm wrong.