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Trump decides not to withdraw from Nafta

Donald Trump has decided not to pull the US out of the North American Free Trade Agreement, agreeing instead with his Canadian and Mexican counterparts to “proceed swiftly” with negotiations to update the agreement, according to the White House. 

The move came in hastily arranged calls between the three leaders after news leaked that the White House was considering unveiling an executive order on Saturday that would have laid the groundwork for a US withdrawal.

That step by the White House — due to come on Mr Trump’s 100th day in office — had been interpreted as an effort to score political points domestically and to put pressure on Canada and Mexico to do a deal rather than a genuine move to scrap the trade pact. 

In a statement, the White House said Mr Trump had agreed with Mexico’s Enrique Peña Nieto and Prime Minister Justin Trudeau of Canada in separate calls on Wednesday to pursue the “renegotiation of the Nafta deal to the benefit of all three countries”. 

“It is my privilege to bring Nafta up to date through renegotiation,” the statement quoted the president as saying. “I believe that the end result will make all three countries stronger and better.”

In a brief statement Mr Trudeau’s office said only that he had stressed “the importance of stability and job growth in our trading relations”. 

As he faces criticism that he has not achieved any major legislative breakthroughs in his first 100 days, Mr Trump is pushing ahead with measures on trade and other issues, such as tax reform, in an attempt to notch up results he can paint as victories. 

Mr Trump railed against Nafta throughout last year’s presidential campaign and has continued to complain about it and the US trade deficit with the world since taking office. He and his advisers have associated the US trade deficit with slow economic growth, though economists dispute the link. 

“The US recorded its slowest economic growth in five years (2016). GDP up only 1.6 [per cent]. Trade deficits hurt the economy very badly,” the president tweeted on Wednesday. 

The Trump administration has wanted to start negotiations over an update of Nafta for some time but has been held up by the fact that Mr Trump’s nomination of Robert Lighthizer for US trade representative is still wending its way through Congress. In order to begin negotiations it needs to provide 90 days’ notice to Congress. A Senate-confirmed USTR also needs to consult with Congress.

Reports that the Trump administration was considering withdrawing from Nafta sent the Mexican peso down 1.7 per cent on Wednesday and it reversed almost all those losses after the White House announced the decision not to terminate the pact. Washington’s decision to impose tariffs of up to 24 per cent on softwood lumber imports from Canada and the president’s tough talk in recent days about Ottawa’s controls on US dairy imports have also hit the Canadian dollar this week. 

Both Canada and Mexico have said they are ready to renegotiate Nafta, which went into force in 1994 and has contributed to the creation of vast and complex North American supply chains that would be difficult to unwind. Officials in Ottawa and Mexico City have also quietly been expressing frustration with the slow progress the Trump administration has been making in getting its trade team in place and navigating the necessary congressional process. 

In an interview with the Financial Times, Ildefonso Guajardo Villareal, Mexico’s economy minister, said his government was consulting with Washington and conscious of the new president’s desire to bring manufacturing jobs back to the US. “We are trying to work with his team,” he said. 

Mexican officials, he said, had also tried to explain to Mr Trump and his cabinet that any time he lashed out at Nafta and the peso fell it only made producing in Mexico cheaper and therefore more attractive to US companies. 

In an interview with Bloomberg, Canada’s foreign minister Chrystia Freeland said on Wednesday: “When it comes to Nafta, we are ready to come to the table any time.” 

Many economists and companies see Mr Trump’s hard line on Nafta as playing with economic fire. China, with which the US had a trade deficit worth more than $300bn, was the US’s top trading partner last year. But Canada and Mexico were close behind and together accounted for more than $1tn in products traded with the US, or almost twice as much as China.

Mr Trump’s manoeuvres appeared to have been intended on raise the heat on Canada and Mexico to do a deal, analysts said. 

“It just brings things to the boil and that’s what [Mr] Trump wants to do,” said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics. 

Others saw the talk of a withdrawal from Nafta as aimed at raising pressure on Congress to confirm Mr Lighthizer, who needs to be in place in order for the administration to formally notify the legislature that it is embarking on new negotiations. 

“This is to pressure Congress to speed things up,” said one person close to the Mexican negotiating team.

Via FT