Trump Threatens to Kill NAFTA if Congress Doesn't Approve His New Deal

Mish Shedlock  |

“I will be formally terminating NAFTA shortly,” Trump told reporters aboard Air Force One on his way home from Argentina

USMCA Deal Signed

President Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Pena Nieto signed a new NAFTA agreement on Friday. Trump calls the NAFTA replacement USMCA, the United States-Mexico-Canada Agreement.


The deal is signed, but it still needs to be ratified by all three governments.

USMCA or Bust

On Saturday, Trump said he would notify Congress in the 'near future' that he will Terminate NAFTA

Trump will give lawmakers six months to approve the treaty. If not, we go back to old WTA rules.

“Just so you understand, when I do that - if for any reason we’re unable to make a deal because of Congress then Congress will have a choice” of the new deal or returning to trade rules from before 1994 when NAFTA took effect, he said.

60 Days Given 105 Needed

The International Trade Commission (ITC) is investigating the Likely Impact of USMCA.

"This report, which will be made public, is due to the President and Congress no more than 105 days after the President signs the agreement."
Congress is expected to wait until the ITC report is issued before voting on the new agreement. In fact, Senate majority leader Mitch McConnell recently told Bloomberg in an interview that the vote on USMCA will be a “next-year issue.”

Jobs Lost

Although the ITC is not required to analyze the impact of withdrawing from NAFTA, there is at least one study prepared by Trade Partnership Worldwide that estimates that withdrawing from NAFTA could cost 1.8 million jobs in the first year.

Bragging Rights

Vox explains the USMCA Deal.

Trump promised to renegotiate NAFTA — and he did. But it’s not exactly the brand new deal he says it is, since the core of NAFTA remains intact. The new deal will also likely do little to address Trump’s big pet peeve about trade deficits.
Unlike NAFTA, the new deal allows each country to sanction the others for labor violations that impact trade. It’s a complex, multi-step process modeled after similar protections in the Trans-Pacific Partnership (TPP), a multinational trade deal that Trump pulled the United States out of after taking office.
But the labor provisions also offer certain complications — particularly how to enforce the $16-an-hour wage rule. “That appears to be a bit of a nightmare in terms of administration and red tape,” says Duncan Wood, the director of the Mexico Institute at the Wilson Center.
They have fixed some of the problems with NAFTA, they have brought it up to date, they have expanded the scope of the agreement, but they have in no way fixed what seemed to be the fundamental problems of NAFTA by President Trump, or the kinds of things he identified during his election campaign in 2016,” Wood said.

Mostly Minor Changes

USMC will not fix what it set out to do. US dairy farmers will have more access to Canada is the big trade win.

Some protections for US industries will be reduced by the agreement, on purpose. Trump feels that if he puts US businesses at the mercy of the Mexican court system they may be less inclined to move work there.

And the deal will likely increase the cost of cars in the US.

Hooray?

Zombie NAFTA

Meanwhile, inquiring minds may be wondering if Trump can really do what he says, terminate NAFTA by decree.

Six experts address the question: Can Congress Stop Trump from Eliminating NAFTA.

  1. Todd Tucker, fellow, the Roosevelt Institute: Congress can’t block Trump from withdrawing, but here's the problem: Much of what is in NAFTA is implemented by congressional statute. Trump doesn't get to change that without congressional support. So, in this scenario, we would have a Zombie NAFTA, where America’s formal participation is dead, but our domestic law would still treat Canadian and Mexican products as if it weren't.
  2. Mickey Kantor, US secretary of Commerce and Trade Representative under the Clinton administration: Most people believe there is no answer to this question, but the province of international trade under the Constitution is under the Congress, not under the executive. But it appears to me that even if President Trump withdraws that it may not be effective because it’s subject to law — Congress ratified the NAFTA.
  3. Phil Levy, senior economist for trade on President George W. Bush’s Council of Economic Advisers: As things stand, there is some ambiguity, because the agreement itself allows for countries to withdraw, and the president would be the one to initiate such a withdrawal. But a president should not be able to revoke a law unilaterally. Further, the Constitution grants Congress, not the president, the power “To regulate Commerce with foreign Nations.”
  4. Douglas Irwin, economic historian, Dartmouth College: There is little precedent for such an action, so we really don't know what Congress intended in the withdrawal authority. What is clear is that any presidential determination to leave NAFTA would be immediately challenged in the courts and some members of Congress will fiercely resist it.

Questionable Ice

The other opinions were variations of those points.

The consensus appears to be that Trump would be on questionable ice.

But I like Todd Tucker's assessment. Even IF Trump can revoke the treaty, he cannot revoke the laws passed relating to the treaty.

Conclusions

  • Trump is blowing both hot and questionable air.
  • And he actually did little to improve what he called the "worst trade deal ever".

Mike "Mish" Shedlock

This article was originally published on Mish Talk.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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