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Trump’s leaks on torpedoing NAFTA could just be a negotiation tactic

Donald Trump
Kevin Lamarque | Reuters
Donald Trump

The Trump administration is weighing an executive order that could yank the US out of NAFTA and cause a potentially earth-rattling upheaval in trade relations across North America.

Reports on the executive order have varied considerably in tone and substance. The Wall Street Journal reports that the White House is "debating" a "formal threat" to withdraw from the free trade agreement. According to Politico, President Trump is "considering" an executive order "on withdrawing," which has been submitted for final stages of review and could emerge next week. And the New York Times has said an order that would actually trigger withdrawal is "likely" to be signed. All of the reports are based on leaks from unnamed administration officials.

So can the US really just abandon NAFTA, the free trade pact that has woven together the US, Mexican, and Canadian economies for 23 years? Yes. The executive order would presumably trigger withdrawal by invoking Article 2205 of the treaty, which lays out that one of the three countries "may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties."

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Can Trump do this alone without Congress, which is already pushing back against the idea of withdrawal? That's not so obvious.

"It's unclear if you need Congress," Chad Bown, a senior fellow at the Peterson Institute for International Economics, told me. "Part of the issue is we've never done something like this before; we've not gone through the legal i's that need to be dotted and t's that need to be crossed."

"The White House is supposed to consult with Congress [about free trade accords] at a minimum, but what does that mean? That's up for interpretation," he added.

Is Trump just bluffing?

There are two crucial questions right now surrounding the prospect of this order. The first is whether or not Trump sincerely plans to sign an executive order that would allow the US to withdraw from NAFTA, or if his administration is leaking this information as a scare tactic to soften up Canada and Mexico in the runup to renegotiating the trade agreement.

Earlier this week, the administration picked a fight with Canada over softwood lumber imports. While it's actually just the latest chapter in a long-brewing conflict between the two countries over the material, starting the clash allowed the Trump administration to score points at home by portraying itself as a protector of US jobs — and look tough abroad.

The timing of the move is also lost on nobody; the US, Canada, and Mexico have all been preparing to renegotiate NAFTA in the coming months. Anything aggressive that Trump does on trade now is likely to shape how negotiators anticipate what his posture will be like in the future.

Up to this point, the Trump administration seemed to be approaching that renegotiation in a strikingly modest fashion. The draft proposal it released in March and has been circulating around Congress ever since offered a raft of ideas that most trade analysts considered to be constructive and ultimately affirmative of NAFTA. "It definitely signaled the US goal would be to update NAFTA and improve it — not to blow up NAFTA," Chris Wilson, deputy director of the Mexico Institute at the Wilson Center, told me earlier in April.

That's what makes the possibility of an executive order pulling out of NAFTA altogether so peculiar, and makes it seem that the leaks could just be a way to apply pressure.

Then there's the second question: How would an actual executive order on withdrawal be related to renegotiation discussions, if at all?

There are a few possibilities here. On one extreme end, it's possible that the executive order is primarily symbolic, like the two trade executive orders Trump signed in March that offered a lot of threatening language but little substance in the way of actual policy change.

The White House said it was going to crack down on overdue trade violation fines and that it was drawing up a report on its trade partners' violations of trade rules, but it offered no blueprint for action.

Theoretically, the executive order that the Trump administration is drafting could fit this mold: It could announce some kind of study of NAFTA trade imbalances and offer some vague language about withdrawing if certain abstract goals aren't met, but lay out little in terms of concrete steps that it would take down the road.

On the other extreme end, the executive order could just be a simple notification to Canada and Mexico that the US plans to withdraw from NAFTA, end of story. Given that the biggest trade radicals in the administration — chief White House strategist Steve Bannon and the head of Trump's National Trade Council, Peter Navarro — have drafted this order, according to Politico, that doesn't seem outside the realm of possibility.

But there are also many scenarios that fall within those extremes. "You could tell trading partners that you may withdraw in six months, but in the end you choose not to withdraw, so it's not actual commitment," Bown says.

After all, Article 2205 says that a country "may" withdraw after providing notice — not that it has to.

Why would Trump do that? Because he would want to give the US the most leverage possible in the renegotiation process. He could say something along the lines of, "We must finish up negotiations that give the US what it wants within six months, or we're out."

All we know at the moment is that Canada and Mexico are wondering which of these scenarios is the right one.