Why a US move to exit NAFTA is not the end of the free trade deal - or free trade US, Canada, Mexico jockey for position as trade talks heat up
By JEFFRY BARTASH
US stocks stumbled briefly in early 2018 on news that Canada expects President Trump to pull out of NAFTA soon, but even if the White House takes that fateful step the economies of North America probably won't suffer major damage anytime soon.
Exiting a major trade deal is not easy. Under the terms of the 1994 North American Free Trade Agreement, the US would first have to give six months notice to the other countries involved, Canada and Mexico.
Such a move would almost certainly invite a legal challenge. Some experts say the president might not have unilateral power to withdraw because Congress passed a federal law to put NAFTA into effect.
Even if the White House prevails, the US could and likely would continue to negotiate with Canada and Mexico, analysts say. Congress could also allow most or all of NAFTA trade rules to remain in effect even after the US officially exits the trade pact.
So, why is the Canadian Government open expressing to the media its growing worries about a Trump pullout? Analysts say Canada is trying to encourage backers of the agreement in the US to lobby the President, especially free-trade Republicans and prominent business groups.
"What seems clear is that the possibility of withdrawal is more serious now than it ever has been and Canada is taking whatever actions it can now to encourage free-trade supporters to keep pressure on the White House," wrote analyst Henrietta Treyz of Veda Partners, a political-consulting firm.
Business leaders have been increasingly vocal.Thomas Donohue, the longtime CEO of the influential US Chamber of Commerce, said this week that leaving NAFTA "would be a grave mistake." He thinks the odds are somewhat lower now than they were last year.
And Jack Gerard, president of the chief lobbying group for oil companies, urged the White House to strike a deal that maintains the benefits of NAFTA such as lower energy prices. Yet, despite all the support for NAFTA, analysts still think there's more than even odds the White House will officially give notice to withdraw. Trump bashed the trade deal repeatedly on the 2016 campaign trail and he's unlikely to back down unless he wins major concessions — concessions Mexico and Canada so far have been unwilling to cede.
Most likely a withdrawal notice wouldn't be issued until after the next round of talks scheduled for late January.
Canada isn't taking any chances, though. In a surprise, the country this week filed a complaint with the World Trade Organization challenging the US from using tariffs to punish what it considers free-trade violations.
The hardball move angered Trump's top trade adviser, Robert Lighthizer, who called it a "broad and ill-advised attack" on longstanding US rules. And it could make current negotiations even more tense.
A lot is at stake. More than $1 trillion in trade and some 14 million US jobs could be affected, according to the American Action Forum, a conservative group that backs NAFTA.
The huge amount of money and jobs involved is why most analysts doubt the negotiations will fail, especially after the Trump White House signed the biggest corporate tax cuts since 1986. The benefits of the tax bill could be wiped out by a North American trade war.
'Relax,' said Nicolas Colas, co-founder of Datatrek, an investment-research firm. "This is a long running debate and there's too much at stake for President Trump or anyone else to meaningfully damage the US economy with an ill-considered change." Jeffry Bartash is a reporter for MarketWatch in Washington.
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