Trump to Formally Terminate NAFTA

Congress can choose either new trade deal or return to rules from before 1994 when NAFTA took effect, Trump says
December 2, 2018 Updated: December 2, 2018

BUENOS AIRES, Argentina—President Donald Trump said on Dec. 1 that he soon would give formal notice to the U.S. Congress to terminate the North American Free Trade Agreement (NAFTA). Trump will give lawmakers six months to approve the new trade deal with Canada and Mexico, signed on Nov. 30.

“I will be formally terminating NAFTA shortly,” Trump told reporters aboard Air Force One after the Group of 20 (G-20) summit in Argentina.

“Just so you understand, when I do that­—if for any reason we’re unable to make the deal … because of Congress—then Congress will have a choice,” he said, adding that the lawmakers can choose either the new deal or return to pre-NAFTA trade rules.

Trump called the new trade deal, the U.S.–Mexico–Canada Agreement (USMCA), “a phenomenal deal.”

“Much, much better than NAFTA. A great deal,” he said.

Democrats, however, who took control of the House in the midterm elections, may reject the new agreement to avoid handing Trump a political victory. Democrats have earlier called for stronger enforcement provisions for labor and environmental standards.

New Chapter at G-20

The United States, Canada, and Mexico begin a new chapter by replacing the 24-year-old NAFTA with USMCA. Trump, Canadian Prime Minister Justin Trudeau, and former Mexican President Enrique Peña Nieto signed the agreement on the sidelines of the G-20 summit in Buenos Aires. The new treaty now will have to be approved by the congresses of each country.

After months of talks, officials of the three countries finalized their negotiations Sept. 30. With its strong provisions, the new pact has become a “playbook for future trade deals,” according to the White House.

Speaking at the signing ceremony, Trump called the agreement “a truly groundbreaking achievement.”

“The USMCA is the largest, most significant, modern, and balanced trade agreement in history,” Trump said. “All of our countries will benefit greatly.”

The new trade pact would bring to the United States high-paying manufacturing jobs and boost exports in various sectors, including farming, manufacturing, and service industries, he said. “This is an amazing deal for our farmers, and also allows them to use cutting-edge biotechnology, and eliminates non-scientific barriers.”

Trump added that the treaty would promote high wages, citing autoworkers as primary beneficiaries.

Under the new deal, 75 percent of automobiles’ content must come from North America, up from the original threshold of 62.5 percent. The higher threshold will keep more parts from other regions out, while boosting production and jobs in the region.

The rules also incentivize the use of high-wage manufacturing labor in the auto sector. Almost 40 to 45 percent of automobile content must be manufactured by North American high-wage labor in order to gain preferential access to these three markets.

“This will help stop auto jobs from going overseas, and it will bring back auto jobs that have already left,” Trump said. “Many companies are coming back, and we’re very excited about that.”

The USMCA also contains new provisions on digital trade and financial services.

‘Significant Accomplishment’

The new deal is “a significant accomplishment” for Trump, according to Edward Alden, a senior fellow at the Council on Fore­­­ign Relations. In an article originally published in Politico Magazine in October, Alden slammed critics who said the new agreement wasn’t satisfactory. Trump succeeded in altering the agreement in ways that Democrats and unions for years have longed for, he argued.

“The unions have opposed every major trade deal for the last 40 years,” Alden wrote. “But with the new NAFTA, President Trump has done more to address their concerns than any Democratic president ever achieved.”

‘A Model Agreement’

The USMCA also has ambitious standards on fighting unfair trade practices, confronting massive state subsidies, and currency manipulation.

It also includes a so-called poison pill, which is a clause that aims to contain Beijing. The provision, which has attracted a lot of attention and praise, essentially blocks any trade flirtation with China. According to the agreement, if any party enters into a free-trade agreement with a non-market country, the other parties have the right to terminate the USMCA on six-months notice.

The use of the phrase “non-market country” is a clear reference to China, since the United States last year reaffirmed that China was a non-market economy. The European Union also opposes China’s recognition as a market economy.

U.S. Commerce Secretary Wilbur Ross earlier said that this provision could be replicated in other trade agreements.

Trump said, “This is a model agreement that changes the trade landscape forever.

“And this is an agreement that, first and foremost, benefits working people—something of great importance to all three of us here today.”

Trump is highly confident that the U.S. Congress will approve the deal.

“It’s been so well-reviewed, I don’t expect to have very much of a problem,” he said during the signing ceremony.

‘Incredible Way to End a Presidency’

During the signing ceremony at the G-20 summit, Trump praised outgoing Mexican President Peña Nieto for signing the deal on the last day of his presidency.

“It is really an incredible way to end a presidency. You don’t see that happen very often,” he said.

Trudeau called the agreement “the new North American Free Trade Agreement” and said it maintained stability for Canada’s entire economy.

“The new agreement lifts the risk of serious economic uncertainty that lingers throughout a trade renegotiation process,” he said. “Uncertainty that would have only gotten worse and more damaging had we not reached a new NAFTA.”

Peña Nieto said the trilateral partners were beginning a “new chapter in their shared history.”

“The agreement that we have signed today will allow each country to gain individually, but also North America will grow stronger and will grow to be more prosperous,” he said.

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