White House Lays Out Nafta Renegotiating Strategy

The US today released a 17-page outline of a "tough negotiating strategy" to revise the 1994 North American Free Trade Agreement, meant to reduce trade imbalances with Mexico and Canada and boost exports of everything from farm goods to financial services while for the first time saying it would seek to deter currency manipulation by trading partners. The outline comes in advance of preparations to kick off heated negotiations to revamp Nafta.

The much anticipated document (press release and link to full document) released by U.S. Trade Representative Robert Lighthizer said the Trump administration aimed to reduce the U.S. trade deficit by improving access for U.S. goods exported to Canada and Mexico and contained the list of negotiating objectives for talks that are expected to begin in one month. Topping Trump’s list is a "simple" objective: “improve the U.S. trade balance and reduce the trade deficit with Nafta countries.” Lighthizer said that the negotiations would begin no earlier than Aug. 16, 2017.

Among other things the document makes the unexpected assertion that no country should manipulate currency exchange to gain an unfair competitive advantage, which according to Citi's economists was the only notable surprise in the entire document:

That line of focus centers on FX: “Through an appropriate mechanism, ensure that the Nafta countries avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage.”


Citi Economics highlighted this as one of the most controversial risks of inclusion in these guidelines. However, it also cited belief that if included in the principles, this issue may need to be addressed separately. Specifically for countries like CAD and MXN.

While Canada and Mexico are not formally considered currency manipulators by the US Treasury, the reference in the list of objectives will likely set a template for future trade deals such as the pending negotiation to modify a 5 year old free trade deal with South Korea, a country in far greater risk of being branded a currency manipulator as it sits on the Treasury's monitoring list for possible signs of currency manipulation.

Specifics aside, the brief position summary offers a glimpse into what a Trump administration trade agenda could look like which until now, Reuters notes, "has been shaped by campaign rhetoric and tweets." Indeed, the demands made by the Trump administration in the NAFTA talks will have far-reaching implications for U.S. trade relations across the globe, especially with China eager to make inroads with Mexico and Canada if the United States is seen to be retreating.

Among the list of general priorities, the administration will seek to eliminate a trade dispute mechanism that has largely prohibited the United States from pursuing anti-dumping and anti-subsidy cases against Canadian and Mexican firms. It also seeks to eliminate a range of non-tariff barriers to U.S. agricultural exports to Canada and Mexico. These include subsidies and unfair pricing structures

USTR said it would seek to strengthen NAFTA's rules of origin to ensure that the pact's benefits do not go to outside countries and to "incentivize" the sourcing of U.S. goods. It offered no details on such incentives and did not specify how much of a product's components must originate from within North America.

Ironically, the topic of trade is one where Trump has found support from both labor union leaders and Democratic lawmakers, both of whom weighed in on the issue early, reminding Trump they expect him to keep 2016 election campaign promises to protect American workers in NAFTA talks (it was not clear if the Democratic lawmakers, or labor unions for that matter voted for Trump). According to Reuters, they stopped short of demanding termination of the 1994 trade pact with Canada and Mexico. Slamming the trade agreement, AFL-CIO president Richard Trumka said NAFTA had been an "unequivocal failure" and should be completely renegotiated. It is safe to say that the 12.5 million mostly democratic members of the labor unions represented by Trump agreed.

"We will do everything we can to make this a good agreement and to hold the president at his word and make sure we get a renegotiation," he told a conference call with reporters. "If it comes out that it is not a good deal, no deal is better than a bad deal," Trumka said.

Seen as a poster child of globalization, NAFTA has quadrupled trade among the three countries, surpassing $1 trillion in 2015 however over the decade stretching 2010 the United States lost nearly 6 million manufacturing jobs. At the same time, the U.S. trade balance with Mexico also swung from a small surplus in 1994 to deficits that have exceeded $60 billion for most of the past decade.

In its primer and preview of "NAFTA 2.0", Citi economist Sergio Luna said that the bank expects "NAFTA to be successfully renegotiated in its current trilateral format even though ratification would take longer (by early 2019)." Citi said that it views the renegotiation process as an opportunity to modernize the agreement, which was a major innovation in global trade when it came into force back in 1994, and expects NAFTA 2.0 to include a digital chapter and other uncontroversial ‘updates’ that were previously agreed upon during the TPP negotiations. That said the bank also expects some “tougher sell” items that could complicate the renegotiations, including stricter rules of origin and changes to the dispute settlement mechanism, a proposal which has made its way into the final draft.

Finally, looking at the three possible outcomes for Nafta ratification, Citi's three scenarios take into account the binding legal timeline the US Administration would face ahead of tight calendar and 2018 elections, and are as follows:

1. The renegotiated trade agreement is signed by early 2018 and the ratification stage is completed using a fast-track process by mid-2018 (40% probability);

2. The agreement is ratified by early 2019 following a “time out” called by all three parties after signing the agreement (50% probability);

3. The renegotiation process is derailed (10% probability). This outcome might prompt the US to withdraw from NAFTA and negotiate two bilateral agreements.

For a graphic on NAFTA's effects, click here.


takeaction Mon, 07/17/2017 - 20:30 Permalink

TRUMP...investigate SETH RICH.  And put that Bitch in jail like you said...and for that shitty healthcare bill....fuck it.  Just repeal Obamacare..and let the markets do it. NO LIMITATIONS...All states in play etc.  

Bes takeaction Mon, 07/17/2017 - 21:08 Permalink

a big fucking chunk of the deficit to Mexico lines the pockets of rich american companiesamerican elites sold out their employees for higher profitstrump includedall his shit is produced overseasbecause the race to the bottom line includes the COST OF YOUR LABORthe destruction of the unions and the middle class they built is nearly completeso your labor is going to go for pennies on the dollar#maga  

In reply to by takeaction

TheObsoleteMan takeaction Tue, 07/18/2017 - 07:48 Permalink

Trump isn't going to do shit. He is a one term President, and he will accomplish very little during that time. What he hasn't reneged on, he will back track on {like the Paris Accords}. There is no renegotiating NAFTA, all that can be done is to tear it up, and return to separate trade deals on a country to country basis. But they will never do this, just like there isn't going to be a wall, or any draining of the swamp, or getting us out of NATO, or sending illegals back, or repealing Obamacare. Nothing. We've been played. Like I said a long time ago, fixing all that is wrong with this country isn't going to be accomplished via elections. It requires the spilling of blood. Lots of blood. If you still believe in playing along with the red team-blue team paradigm, you are hopeless lost at this point. It is them against us, period.

In reply to by takeaction

AtATrESICI Mon, 07/17/2017 - 20:32 Permalink

If Trump cuts down the free flowing of cross boarder traffic that will not be good for the Owner's/Deep State's drug trafficking revenue stream.

TheObsoleteMan Yen Cross Tue, 07/18/2017 - 07:57 Permalink

Yes he did, but that was then, and this is now. This is the new-old-same as I ever was Donald Trump. Although I was never a "anybody but Trump" guy, I always took what he said with a grain of salt. The man hasn't even been in the WH for six months and I had lost all respect for him. He has sold us a bill of goods. Don't expect much and you won't be disappointed. He is an empty suit.

In reply to by Yen Cross

Iskiab Mon, 07/17/2017 - 21:11 Permalink

I wonder what dispute resolution mechanism there will be if the current one is replaced? So far every ruling has gone in the US's favour because they can stack the arbitrators.

It'll be interesting to see if one of the countries walks away from the table. I know in Canada Trump had issue with how we subsidize Canadian farming, and that's on the list of topics for NAFTA. Essentially the issue is Canada subsidizes farmers differently then the US. It's also a powerful lobby in Canada and will be a no compromise issue on the Canadian side.

In general the thinking has been NAFTA has been a win for the US and Canada, and has hurt Mexico. At some point if there's no compromise expect Canada or Mexico to walk away... but the political leaders might not have the balls. No one wants to be remembered as the leader in charge when things went bad.

P.S. - the issue, as always, with trade deals is you're giving away sovereignty on the agreement someone else will too. If the ask is too large it will stop a deal, somewhat like brexit where Britain gave up economic gain for political control.

Snot Boogie Iskiab Tue, 07/18/2017 - 00:44 Permalink

"In general the thinking has been NAFTA has been a win for the US and Canada, and has hurt Mexico." Whose thinking is this statement referring to?  Also, in what way has the US benefited and Mexico been hurt?  Has the benefit/detriment, if any, been different for different stratas of society?  

In reply to by Iskiab

NoWayJose Mon, 07/17/2017 - 21:15 Permalink

I thought about making some investments in Canada earlier this year - when the CAD was weak - but falling oil prices, outrageous home prices, and Trump's threat of NAFTA made me wait. Things could still fall apart quickly north of the border.

Yen Cross Mon, 07/17/2017 - 21:19 Permalink

  The low Vol $usd capitulation move is under way.  These moves aren't $usd shorts, but rather [parasitic] weak longs covering.  Stay tuned for the mega candle, that defines the end of every trading trend~  Gold is popping higher...

Father ¢hristmas (not verified) Mon, 07/17/2017 - 21:39 Permalink

Fuck yeeeaaah!Donald and his totally not Jew dual citizen Zionist bankster and slumlord globalist cabinet are gonna renegotiate NAFTA!Then he's gonna audit the Fed!Then he's gonna tell the Tribe to go fuck themselves and set up a new alliance with Russia to promote a lasting peace in the ME!Then he's gonna abolish fractional reserve banking and direct the federal gubmint to issue gold and silver coins as currency!*chuckle*Fuck outta here, goofballs.Just do like me and revel in the memories of libtards looking dumb as fuck the day after election day when Literally Hitler crushed their faggoty dreams, alright?2016 was a choice between agreeing to getting buttfucked, and being tricked into being buttfucked.  I dunno about you, Kyle and Brett, but if I'm gonna be buttfucked, I'd rather not see it coming.  Hence, my vote for Donald instead of Hillary.Plus, Donald is crazy.  But it's sort of a fun crazy.Shit nigga, once a day I watch that video of Donald pushing that Eurotrash faggot out the way during that globalist cocksucker summit a while ago lolBut um, yeah, the middle class is dust, and the future is starvation, oppression, and ultimately death for most of the goyim.  America will become a failed state.

Anteater Father ¢hristmas (not verified) Mon, 07/17/2017 - 22:20 Permalink

The cost of bribes to the Trump-Kushner Foundation at666 Fifth Avenue has just gone up, to bail Donald Jr andJared Kushner out of jail before their Congressional trial.It takes a lot of bribes to get the Supreme Court judges.Remember, "If the glove don't fit, you must acquit!!'FREE DONALD JR!!! http://imgur.com/a/xyfR3

In reply to by Father ¢hristmas (not verified)