NAFTA Opening Round Fissures Over The Meaning Of "Substantial": What's The Best And Worst That Can Happen?

Authored by Mike Shedlock via,

Trump is bound and determined to have his way in NAFTA negotiations whether or not anyone agrees with him. Ironically, not even the auto manufacturers do. The first round of negotiations, now underway, has hit a snag already. The meaning of “substantial” is in play.

The Wall Street Journal reports U.S., Canada and Mexico Wrap Up Nafta First Round.

Opening-round talks to remake the North American Free Trade Agreement revealed early fissures dividing the U.S. from Mexico and Canada, including a Trump administration proposal to require a “substantial” portion of autos and auto parts produced under the pact be made in the U.S.


The renegotiation of the trade deal, which was one of President Donald Trump’s main campaign promises and a key pillar of his “America First” agenda aiming to revive U.S. manufacturing and reduce the country’s trade deficit, is likely to face many hurdles. Auto makers in all three nations generally oppose the stricter rules floated by the U.S. negotiator, and pro-business lawmakers in Congress don’t want to see the pact significantly altered.


Early tensions over areas such as the so-called rules of origin—a major issue for the automotive industry—signaled the tough bargaining that lies ahead as the three nations try to wrap up a deal by early next year.


The chief U.S. negotiator, Robert Lighthizer, came into the talks Wednesday saying the U.S. would insist on tightening the rules of origin, and adding a provision covering U.S. production, an idea quickly dismissed as unworkable by Mexican and Canadian officials.


At this early stage of the talks, it is difficult to measure the depth of the disagreement. Opening rounds generally set the tone and schedule for negotiations. The U.S. has yet to release specifics on some of its most controversial positions, including measures to reduce the U.S. trade deficit, prevent currency manipulation, favor U.S. companies in government contracts, known colloquially as Buy America, and rework rules governing arbitration panels.


The U.S. feels that its most significant leverage in the talks is Mr. Trump’s threat to withdraw from Nafta if the U.S. doesn’t get the changes it wants. North American trade is far more significant to the Canadian and Mexican economies than it is for the U.S.


Mexican negotiators say they are prepared to scrap Nafta rather than accede to demands they consider harmful to their economy.

What’s the Best That Can Happen?

That’s a softball question. The best thing that can possibly happen is the trade talks collapse and Trump backs down on his promise to revoke the deal.

Nearly as good would be minor tweaks that don’t really do anything. One might even argue this is a better alternative as it would allow Trump to save face while bragging about nothing.

What’s the Worst That Can Happen?

The worst is the trade talks collapse, Trump abandons NAFTA and starts a global trade war.

What’s Likely?

I suspect there will be trivial to non-trivial but not devastating changes.

Given Trump’s propensity to back down, reverse course, or change his mind on a second’s notice, literally anything is possible.

Related Articles

  1. Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
  2. Make China Great Again: Ford Bypasses NAFTA Dispute By Moving Focus Production to China
  3. Killing the Trade Golden Goose: Farmers Rattled by Trump’s NAFTA Rescinding Plans
  4. Lose Lose Lose Affair: Farm Lobby Turns Up Heat on Trump Over NAFTA

An ideal trade agreement can fit on a napkin: Effective immediately, all tariffs and all subsidies, on all goods and services ends today.


MuffDiver69 Mon, 08/21/2017 - 09:59 Permalink

Having China send parts to Mexico and Canada and then they assemble it 80% and ship to us tax free is free trade...Just a Globalist scam...Of course a certain percentage of products sold in our market should be made here...Every fucking country does this..Every single one.

Looney MuffDiver69 Mon, 08/21/2017 - 10:00 Permalink

  … The meaning of “substantial” is in play. The same applies to NATO’s “not substantial” and “non-permanent” presence close to Russia’s borders in Europe. Who the fuck writes those Treaties and Agreements? There are armies of lawyers involved on all sides and no one had caught it BEFORE signing it? Wha-da-fuh?   ;-) Looney

In reply to by MuffDiver69

Paul Kersey HardAssets Mon, 08/21/2017 - 11:20 Permalink

This is language straight out of the TPP that Trump said he was against (before he was elected):

"Seven months after President Trump accused the pharmaceutical industry of "getting away with murder," he is busy lining the pockets of large pharmaceutical companies worldwide by giving them more power to charge higher prices overseas. Their price monopolies are likely to be extended under a draft executive order promising "greater intellectual property protection" in multilateral and bilateral trade agreements. The North American Free Trade Agreement, for example, has already been pegged to harmonize foreign intellectual property standards to reflect those found in the United States. Canada, it seems, will be the first target of U.S. indoctrination."

In reply to by HardAssets

Econogeek HardAssets Mon, 08/21/2017 - 11:31 Permalink

I was on the rules of origin negotiating team, spent a few years schlepping to Canada and Mexico for the triparty negotiations. Didn't do manufactured goods, did other areas, made sure all rules in my area were expressed as a percent. Manufactured goods were not that difficult for the 3 sides to do, they were just complicated and took a long time.  The big money big power guys behind the scenes on all 3 sides all wanted the same thing -- good quality at the lowest price, emphsis on price.  The border companies were being built up in Mexico even before the negotiations were finished -- it was that obvious that the goal was cheap supply from Mexico.Mexico's threat to withdraw from NAFTA is not a bluff.  The auto and other guys don't want to have to raise prices or hit margins. Even here on ZH, most people don't seem to understand the extent to which the world is run not by governments but by big money big power, with govt employees hired to do big power's bidding.  It's more complex than that, but that's the gist.

In reply to by HardAssets

tmosley Mon, 08/21/2017 - 09:57 Permalink

>The worst is the trade talks collapse, Trump abandons NAFTA and starts a global trade war.IE its a no lose situation.Also, why would the collapse of the NORTH AMERICAN Free Trade Union cause a GLOBAL trade war?

Econogeek tmosley Mon, 08/21/2017 - 11:41 Permalink

NAFTA signatories are not a closed system.  If we enfoced rules of origin on textiles, for example, a lot of Chinese product would be hit since China uses NAFTA to do backdoor exports to the US as "Mexican" product that gets preferential NAFTA treatment..  Guess what the big US retailers want -- Chinese product (say, clothes) at preferential NAFTA tariff and quota rates.  They have their cake and are eating it too.NAFTA has had a huge effect on US trade patterns.  The big power types are pretty happy with it.  Workers not so much.  Guess who has the loudest strongest best-funded voice, who essentially runs things.  Hint:  not workers.  Godspeed Mr. President.

In reply to by tmosley

Lucretius Econogeek Mon, 08/21/2017 - 12:24 Permalink

I have to agree, from a consumer standpoint (not a professional negotiator/lawyer). I stopped buying Levis 501's 25 years ago when they moved production to Mexico. They were $35.00 back then, just too damn expensive for this poor boy, and I felt it was wrong to expatriate the jobs! However, that being said, the quality of textiles manufactured (sewn) in Mexico is/was by far superior to the Chinese/Korean/Viet Nam/Packi crap found today at the consumer level. So today, my jeans still cost 8-9 bucks, and don't last as long as Levis 501's, but I can live with that. I don't know if Mexico still produces much, but I'd buy it over other third world countries!

In reply to by Econogeek

NickyGall Mon, 08/21/2017 - 10:00 Permalink

As shown in this article, rewriting NAFTA could end up hurting the United States far more than it hurts Canada and Mexico:… 
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Donald Trump may find out the hard way that renegotiating NAFTA was not in America's best interest.

Defiated tmosley Mon, 08/21/2017 - 11:18 Permalink

Every last AMERICAN could die off and THE WORLD would be a better place....(including the DUAL ISRAEL CITIZENS and 'frothing' WAR MONGERS like RICHARD PEARL & PAUL WOLFOWITZ0....WMD's anyone...(where are those 2 JEW BASTARDS hiding these days anyway?) The sad fact is that ISIS would not be around if IRAQ had a 'strong man' like Saddam Hussein...OH WAIT!!..TOO LATE!!neither would MILLIONS OF REFUGEES...(that the USA CREATED..and want to 'turn a blind eye to')The USA needs  BOGEY-MAN like Russia.... but why do the EUROPEANS have to suffer while 'Sanctions' are place on 'trade' with Russia?????Electing George W Bush...TWICE!?!?!...WTF?.....and now Orange Trumpius????..YOU GOTTA BE KIDDING ME!USA lost your moral compass....and lost your CREDIBILITY..MESSAGE TO RED NECK USA...FUCK OFF!!!!!!!!!!!!!

In reply to by tmosley

Iskiab NickyGall Mon, 08/21/2017 - 11:45 Permalink

Figuring out who wins or loses for trade is difficult. Economics will say everyone loses from trade restrictions based on comparative advantage, but that's looking at GDP numbers. Within each country who really loses is labour because a bigger labour pool means lower wages.

I'm not sure how it will play out, but I have an idea. I think the renegotiations are a waste of time, NAFTA will be scrapped without major capitulations from Mexico and Canada, the negotiations are being done so Trump can say 'we tried and it failed'. The timelines are too tight.

The US and Canada are currently the big winners from NAFTA, while some things are made in Mexico free trade has decimated Mexican business'. It's US companies who produce there, the same has happened in Canada.

During the original NAFTA negotiations Canada walked away from the table on the issue of a dispute resolution process. Canada, rightly, doesn't trust the US legal system to fairly arbitrate issues. Mexico's economy hasn't done well since NAFTA began.

The US is asking for all the privileges of free trade while protecting the US economy. As smaller players Canada and Mexico signing will have more to do with how much backbone they have to say no, with the US being unreasonable.

In reply to by NickyGall

BandGap Mon, 08/21/2017 - 10:01 Permalink

Not with the costs of labor being so different.I'd pull the deal, I cannot think why it was done in the first place. We already know Canada subsidizes lumber to the nth degree and that Mexico offers cheap, non union labor. All this was known before this piece of shit "treaty" was put in place. The US never realized the bullshit gains that were promised. Well, at least that hasn't changed.Fucking unions should be fighting this shit tooth and nail.

Mercedes BandGap Mon, 08/21/2017 - 11:19 Permalink

Lumber has always been specifically excluded from NAFTA and has it's own deal.  The so called crime of Canada is that it doesn't tax lumber companies enough for access to the unlimited forests that usually have no roads, no supporting infrastructure that lumber companies don't put in themselves yet subject to an incredibly harsh climate.  That is not subsidizing to the nth degree.  Lumber is soley about U.S. protectionism because the CAD has dropped substantially.

In reply to by BandGap

sidfalco Mon, 08/21/2017 - 10:04 Permalink

"pro-business lawmakers in Congress"What a joke. The only thing they are "pro-business" about is getting kickbacks from foreign companies. 

HardAssets Mon, 08/21/2017 - 10:13 Permalink

'Auto makers' and 'pro business lawmakers in Congress" - really meaning the 1% who line their pockets with bonuses by offshoring American industry & their paid politico whores who enabled them to do it.

As for what's actually best for the country- - they care nothing about that.

Catahoula Mon, 08/21/2017 - 10:13 Permalink

Pro NAFTA propagandists and ingrained fake news. Scrapping Would not cause a global trade war. Fuck Mexico! Illegals don't pay taxes and send money back to Mexico. Consider "La Raza" the next time you shove burritos up your ass and down your throat. The hate the gringo. 

HardAssets Catahoula Mon, 08/21/2017 - 11:10 Permalink

Siphoning off money from Americans in the form of lost manufacturing jobs and illegals crossing the border didn't help the Mexican people in the long term. It only provided enough money to their people to allow their corrupt government to remain in power.

Without that money heading south, they probably would have tossed out that corrupt government long ago.

As for America - - you cannot have a true democratic republic that defends individual rights without a prosperous middle class. A society of lots of poor people and a few ultra wealthy at the top is a blueprint for tyranny.

Stupidly, Americans thought it was all about consumer trinkets. That completely misses the point. Its really about empowering those who give their consent to the government.

In reply to by Catahoula

spanish inquisition Mon, 08/21/2017 - 10:19 Permalink

Mexican negotiators have said they will scrap Nafta rather than accede to demands they would consider harmful to Mexico......So the Mexican government is stating there is hardly any benefit to Nafta. Any changes to Nafta and the result will be worse, than if there is no Nafta at all.Sounds like they are making the case to scrap it for Trump. 

sheikurbootie Mon, 08/21/2017 - 10:30 Permalink

Everyone forgets the "Sell" to the American people.- The politicians sold this to the citizens as a way to help Mexico keep Mexicans in Mexico.  The US would not have an illegal immigrant problem.  blah, blah- It was also going to save American's money with cheaper good, blah, blahWhat happened - The factories built on the border did employ Mexicans ($2/hr) and ended up taking jobs OUT of the US and many factories moved to Mexico due to cheaper labor costs (no EPA, OHSA either).  - The Mexican's realized they could walk across the border and make more than the measly $2/hr and easily find work at $7/hr plus working illegally in the US.  They'd live on a minimum amount and send the remainder home to Mexico.NOW...We have a bigger illegal people problem since 1992 AND we lost a huge amount of our manufacturing jobs to Mexico.Conclusion..fuck Mexico, Mexican's and OTM's.   Kill NAFTA.

Defiated sheikurbootie Mon, 08/21/2017 - 11:09 Permalink

sorry, 'Oversimplified'...The Corporations who OWN THE POLITICIANS wanted to increase their 'PROFITS'...what they forgot, of course, is that the 'guy who builds' the $35,000 F-150 is also the guy who can actually 'AFFORD IT'we have lots of MEXICANS coming up to southern Ontario to harvest crops.....They all drive around local towns on BICYCLES!!remember HENRY FORD??

In reply to by sheikurbootie

acheron2016 Mon, 08/21/2017 - 10:37 Permalink

What's the best that can happen?  A US travel ban on US citizens visiting Mexico.A US trade Embargo against all Mexican imports.US Combat Marines posted the entire length of the border with orders to kill any living thing that crosses it. But that won't happen.  Because I am coming to realize Trump is 90% talk and 10% action.  He can easilly achive his 10% goal without doing a single thing to help the American people. 

me123me Mon, 08/21/2017 - 10:38 Permalink

So the car companies that want to move prodution to Mexico and sell in the US dont agree with Trumps stance on NAFTA? What an idiot Trump is wanting to bring jobs to this country the guy should be impeached for this. ))

sheikurbootie Mon, 08/21/2017 - 10:54 Permalink

Today...Border Patrol agents at a Texas checkpoint found 60 people hiding in a refrigerated tractor-trailer on Saturday. SHUT IT DOWN!  BUILD A GIANT WALL! 

Robert Trip Mon, 08/21/2017 - 11:03 Permalink

The United States negotiated the deal with Mexico and Canada certain in the fact they were going to fuck over Mexico and Canada big time.Didn't work out did it?Now the Americans want out or a whole brand new attempt at fucking the other guys.Even your signature on a deal is no fucking good.

Hamm Jamm Mon, 08/21/2017 - 11:10 Permalink

SO bring manufacturing back so ROBOTS  can do it or do it in other countries  ???Do you think any of this will benefit the low and low middle class ???Its rigged !  its FAKE !    unless you are a 1% person, these are the only ones who will benefitits FAKE TRADE!argueing about it is absolutely ridiculous and absurd, unless your a goddam moronspouting off about nationalism and protectionism while the 1% go and F you in the ass etc 

Bemused Observer Mon, 08/21/2017 - 11:32 Permalink

Sorry, they won't get their global economy. The strains are already pulling the fabric apart, and it hasn't even been woven yet. Labor is under great stress and automation is exacerbating it. And while we here in the West may feel secure with the automation of labor, most places on Earth still depend heavily on that human labor, and if we see disruptions there, it could effect all kinds of supply-chains. The Wests fancy robots won't run long without the metals and rare earths from mines not under our control.And business has yet to reconcile its desire for profits with its obligation to contribute to the economy that made them rich...this isn't going to work if everyone just EXTRACTS, with no one putting anything back, is it?Globalism won't work unless there's something in it for everyone. If you are going to have a small group demanding it all, then no one else will want to go along. Since that small group can't 'do' globalism all by themselves, it won't happen. The size of the mess they make trying is up to you. How much are you willing to put up with before you finally say, "All right, enough! That's it.."?

my new username Mon, 08/21/2017 - 11:37 Permalink

The best that can happen for Americans is that NAFTA is killed stone dead, globalists are taxed at 110% of their assets, and Paul Ryan ends like Gadaffi, dragged out of a drainpipe to meet his fate.

Robert Trip Mon, 08/21/2017 - 11:50 Permalink

Trudeau will eat Trump's lunch on this.The "left wing snowflake liberal progressive pansy" as some here refer to him are way off the mark.Trudeau has already approved the construction of the largest LNG facility in the world being built in B.C. along with the pipeline that will feed it.The refugees from the U.S. coming over the border illegally have been informed they may be living in tent cities for years before their applications are heard.This guy Trudeau is a hard-ass along with being a semi-pro boxer.You read your MSM articles about him and you believe the bullshit.Pity.