Whither TTIP? Watch the NAFTA....

My interest in the future of the NAFTA has consumed a lot of (digital) ink on this blog. Jeffrey Schott of the Peterson Institute for International Economics has taken a good look at a draft White House letter to Congress outlining the general contours of what the NAFTA negotiations might look like.  Schott is always good, and his snap analysis is worth a read (link). Schott's conclusion is that while details remain sketchy, there is reason to believe the NAFTA won't be exploded entirely.

There's no doubt in my mind that the renegotiation of the NAFTA is forum in which we'll find out what Trump's trade policy is really about. I've penned a short post for the American Institute for Contemporary German Studies, at the Johns Hopkins University in Washington, D.C. (original post, here). But I've also reprinted the text in full below.

Looking for Insight into the Future of Transatlantic Economic Ties? Watch What Happens to the NAFTA.

Greg Anderson

2016 was a tumultuous year in the political economy of trade. Populists have been on the march nearly everywhere—slowed, perhaps temporarily, by Dutch elections two weeks ago. At times, the target has been nothing less than the entire postwar order. More proximately, it's the global economy, and the agreements that undergird it, that fuel the populist rage.

Last June, Great Britain voted to exit the European Union—Prime Minister Theresa May on Wednesday triggered Article 50 to begin with withdraw process, a process some predict could be an ugly divorce. In November, a similarly populist, anti-immigrant, anti-globalist electorate brought Donald Trump to the White House. President Donald Trump has made good on a lot of his anti-trade rhetoric; one of his first acts after taking the oath of office was to pull America out of the Trans Pacific Partnership—effectively leaving the other TPP countries at the altar.

Since 2013, the United States and Europe have been working on a much larger liberalization project; the Transatlantic Trade and Investment Partnership (TTIP). Trump has yet to formally suspend the TTIP negotiations, but given the chill he’s cast over the future of America’s economic relationships, he doesn’t have to. TTIP is unofficially in limbo.

Scholars, pundits, and America’s trading partners are scrambling to make sense of Trump’s economic agenda. Yet, insight into the future of transatlantic economic relations may come from—to continue with the marriage metaphors—the impending divorce in North America.

In addition to taking a wrecking ball to the TPP, Trump has promised to formally withdraw from NAFTA. Most now expect a “renegotiation” of North America’s economic relationships to begin in earnest later this year. For now, Canada and Mexico seem to be playing along—initiating their own domestic stakeholder consultations in preparation and, in an unusual display of unity, last month signalling a strong preference for trilateral talks.

Yet, it’s far from clear what will end up on the North America 2.0 negotiating table, including whether there will be one table with three chairs—one each for Canada, the United States, and Mexico—or if there will be two separate tables with entirely different sets of issues. In February’s press conference with Canada’s Justin Trudeau, President Trump said things would be “tweaked,” that it was a “...much less severe situation than what’s taken place on the southern border. On the southern border, for many, many years, the transaction was not fair to the United States. It was an extremely unfair transaction.”

Will the Canada-U.S. trading relationship get “tweaked” while U.S.-Mexican trade gets turned on its head? What will the practical difference mean? What parts of the existing NAFTA structure will survive a “renegotiation”?

A “hard divorce” (a la “hard Brexit”) would have consequences for all three countries. In 2015, Canada and Mexico combined took in just 33 percent of America’s exports—not small, of course. But for Canada and Mexico, the consequences are dire, each dependent on U.S. market access for, respectively, 77 percent and 81 percent of their export earnings. Regrettably, the signs are that the divorce settlement with Mexico could be bleak. Donald Trump has used Mexico as the poster-child for everything that’s wrong with America’s economic relationships. Moreover, I suspect Ottawa will quickly abandon the show of unity with Mexico City if more favorable terms with Washington are on offer. Hence, my bet is that divorce court in North America will actually be two separate courts; one for Mexico, the other for Canada.

Observers of transatlantic relations might want to pay a bit more attention to the terms of divorce with Canada. Apart from Canada being a “less severe situation” in Trump’s mind, any changes to the relationship with Canada will effectively set the agenda Trump pursues with other developed states; that includes a post-Brexit UK and the remaining 27 members of the EU.

NAFTA is devoid of the supranational pooling of sovereignty we see in Europe. Given Trump’s brand of nationalism, it’s not hard to imagine scrapping the limited institutionalization that does exist in the NAFTA area; dispute settlement on dumping and subsidy cases (Chapter 19), investment protections (Chapter 11), the NAFTA Commission (Chapter 20).

Will Canada and the United States take the opportunity to harmonize regimes in intellectual property protection and product testing or find ways to liberalize each other’s government procurement markets? Will there be strong investment protections, new disciplines in services, enhanced mobility for professionals, e-commerce, or competition policy? Or, will it all go the other direction with North America 2.0 fostering a narrowing, rather than an expansion and deepening of the agenda, even with America’s closest ally, Canada?

Whether we optimistically call it a “renegotiation” or lament the demise of NAFTA like a “divorce,” North America will be the first real test bed for Trump’s economic policy. Atlanticists ought to pay attention to how it all unfolds.