The topic of my presentation was the NAFTA2.0 negotiations. The timing was good. The 5th round of negotiations had just concluded in Montreal the previous week and Canadian Prime Minister Justin Trudeau was going to be in San Francisco in the following couple of days touting the merits of trade as well as the high-tech sector for Canada.
In future I might try and record some of what I say at these things. Now and then I say something interesting only to wish I had written it down somewhere. Actual PowerPoint presentation is linked here. However, I thought I'd try and reconstruct a bit of what I said with an "annotated" form of that presentation.
1. For anyone who's followed the Trump Administration's approach to trade, the title speaks for itself. However, it's also a bit of a play on a phrase coined by former (and late) U.S. Ambassador to Canada, Paul Celucci who quipped in early 2003 that "...security trumps trade." And, of course, The Economist seems always to have a way of mixing imagery with the wry use of language that I really appreciate. 
2. This next slide is simply a rip-off of Edvard Munch's famous "Scream" painting depicting Uncle Sam dismay. Use it here simply to remind of the chaotic roller-coaster we've been on since Trump's inauguration.
3. The main point I wanted to make here is that Trump's declaration that the NAFTA is the worst trade agreement ever made is worrisome. However, the sky isn't necessarily falling either. Why?
4. This triangular representation of trilateral trading patterns depicts North America as a tale of two bilateral relationships. North America is clearly anchored around trade to and from the United States. However, the point here is that while there is still plenty of room to grow in terms of beefing up the relationship between Canada and Mexico, the robustness of trilateralism is something that killing the NAFTA isn't going to reverse over night. It's not a case of "don't worry, be happy," but it's also not going to be the end of the world. 
5. The premise of the next several slides is that Trump's threat to the NAFTA is a kind of barometer for a broader populist-driven revolution in postwar U.S. foreign policy. Trump, of course, didn't create the conditions we find ourselves in, but he certainly exploited them to great effect. Optimistically, one hope is that having highlighted the underlying challenges to the lattice-work of postwar institutionalization, the global community will move to address those challenges. The isolationist sentiment in American foreign policy has never really disappeared, but its contemporary manifestation is worrisome in the context of populism in many locations. The early postwar years are often depicted as the byproduct of clairvoyant leadership by statesmen aimed at short-circuiting some of the economic chaos and beggar-thy-neighbor nationalism that some saw as laying the foundation for political nationalism, fascism,and war.
There are depictions of the early postwar years that challenge this basic story, but there's no doubt that American support for many of the institutions it had a large hand in creating are being challenged in unprecedented ways. 
6. Who in Trump's orbit is driving all of this? And what is Trump's DNA when it comes to trade? In many ways, what Trump thinks about trade and economic openness generally seems driven by who the last person was to pitch him an argument. His economic team is riven with conflicting views about the role of America in the global economy, but is most heavily dominated by those whose formative professional battles were anchored in the protection of American industry and jobs from the pressures of foreign competition. Trump's DNA seems predisposed to the arguments of the anti-globalists in his midst; in the 1980s and 1990s, he regularly railed against Japan and others who he perceived were "ripping America off." Trump's is not a nuanced or sophisticated view of economics, but one that makes him more susceptible to the protectionist arguments of others.
7. It is a worrying sign of where we are that may commentators are looking to a troika of former military commanders as stabilizing forces in the Trump Administration. Part of the thinking here is that Kelly, McMaster, and Mattis have a deeper, first-hand understanding of the importance of America's global leadership role and that they may act as the voice of reason around any Trump moves to fundamentally undermine that role. We'll see. I'm still getting used to talking about military personnel putting on suits and occupying such important civilian roles. This is uncomfortable terrain normally not associated with the United States.
8. There are many elements one could point to since 1994 to help explain why the NAFTA became such a poisonous political football. The bottom line is that it became a football in the United States during the 1992 presidential campaign, and became emblematic of nearly everything that was wrong with trade after it was formally implemented in January 1994. For nearly all of the NAFTA's existence in our political and economic lexicon, the Agreement's proponents have over-promised what it could do while its critics have assigned to it all manner of social, political, and economic ills. The NAFTA was a relatively shallow preferences agreement-- implying no supranational institutions-- and an incomplete one at that. Indeed, there were many left-overs from the NAFTA in the 1990s. But no one had the political capital to make any headway on them. Indeed, NAFTA became one of those radioactive political pejoratives that shut down discussion of trade. Few politicians would discuss the NAFTA after 1994; it was far more expedient to be against it even if you didn't really know what was in it.
9. Unfortunately, the 9/11 terrorist attacks on the United States had the effect of renewing attention on what North America could be. In the years following those attacks, considerable thought was put into how to keep North America's borders porous for legitimate travel and cargo while also finding ways to interdict illegitimate traffic for security and other purposes. For an account of this period of time, you can do no better than this piece. There has been some creative thought about how to conceptualize the North American security and economic space in continental terms; not quite a customs union or free market as we see in the EU, but something more deeply trilateral than the NAFTA. Unfortunately, the end result of all the post-9/11 activity around North America was the permanent linkage of security to economics, with the advent of the U.S. Department of Homeland Security (DHS) driving all of the dynamism of the North American agenda; DHS is not exactly oriented toward advancing a liberal, internationalist agenda. Indeed, as the manager of everything connected to the U.S. border, including immigration, customs inspection, and the various frequent traveler and trusted cargo programs, DHS has assumed a role as the single most important part of the U.S. bureaucracy for Canada and Mexico. 
Instead of a perimeter strategy, we have the entrenchment and militarization of North America's borders as economic choke points. Moreover, the demise of the "North American Idea" has meant a return to North America conceived of in hub-and-spoke terms, or the tale of two bilateral relationships rather than as a coherent trilateral whole. 
10. We suddenly find ourselves in the midst of a misty-eyed nostalgia for a time when North America seemed less contentious and fraught. However, some of the fundamental challenges flowing from the asymmetrical qualities of North America remain firmly entrenched, many of which present dilemmas for Canada and Mexico as they contemplate how to handle Trump.
11. The next several slides depict a number of structural asymmetries in North America, most pointedly the dependence of Canada and Mexico on exports to a single market for a high percentage of their GDPs. One important measure of a country's openness to the global economy is the sum of exports and imports expressed as a percentage of GDP. Of course, that openness to the global economy can also be interpreted as a form of dependence. In 2015, Canada and Mexico were deeply dependent on the global economy for large shares of their GDP (65% and 73% respectively). By comparison, just 28% of America's GDP was connected or dependent upon the global economy; not surprising given the depth and size of its domestic consumer market. Importantly, when you look at the range of trading partners each NAFTA country is connected to, the United States also has a more diverse and evenly distributed set of trading partners than does Canada or Mexico. As part of Canada's public relations offensive in the U.S. around the NAFTA2.0 negotiations, Ottawa has been pointing out that many U.S. states count Canada as among their most important trading partners. But Canada's dependence on just a single market for a large share of GDP is hard to escape.
Connected here is a debate that is older the Canadian Confederation; the tensions between divsersification of Canada's economy away from such heavy reliance on the U.S. market and the degree to which Canadian policy should incentivize value-added manufacturing in that trade.
There's an old saying that Canada is full of "hewers of wood and drawers of water," meaning that most of Canada's economy is based upon raw materials extraction. In many ways, this remains the case. Canada exports a lot of unprocessed raw materials and imports a lot of finished manufactured and consumer goods. Every time there's a disruption to the flow of those raw materials south--softwood lumber dispute, the 2005 mad cow fiasco, or the painful debate over Keystone XL-- the debate about whether Canada should have a different diversification strategy reignites.
12. So, this brings us to the NAFTA2.0 negotiations themselves and whether Trump is serious about killing the worst trade deal ever negotiated? Let's first acknowledge that the NAFTA is 24yrs old. At the time, it was an innovative effort to integrate North America. Yet, as I noted earlier, there was a large leftover agenda from that negotiation that was never really addressed, even though security brought some renewed attention after 9/11. In short, the NAFTA could use some "modernizing" or "updating." It should all have been relatively straight forward, actually. All three countries have engaged in FTA negotiations with third countries using updated texts complete with new areas of coverage and new disciplines on a range of non-tariff measures. Moreover, all three countries were parties to the Trans Pacific Partnership, a 12 country free trade pact that Mr. Trump foolishly pulled out of with his third Executive Order in office. In other words, it would have been easy to pull out the TPP text, augment it a bit for the NAFTA area, and slap NAFTA2.0 at the top. Art of the Deal? Sure. Done.
13. It should be noted that the mere expansion of FTAs is not inherently desirable in terms of actually freeing trade. Trade agreements like the NAFTA generally free more trade than they restrict as required under Article XXIV of the GATT/WTO Agreements. However, FTAs, sometimes called Preferential Trade Agreements (PTAs), are also inherently discriminatory in the sense that you are concluding arrangements to ease trade with your friends, some of whom may not be the world's low cost producers (trade diversion). The proliferation of FTAs/PTAs since 1994 has been astonishing and detrimental to the broader, and more globally consequential, multilateral trading regime. Instead of a single set of multilateral rules governing trade, we now have that and layer upon layer of comparatively inefficient preferences; a spaghetti bowl.
14. The agenda for NAFTA2.0 among advocates of deeper North American integration has been fairly clear for 20yrs; essentially, modernize the NAFTA and inch toward a customs union. The NAFTA2.0 agenda under the Trump Administration looks as though it has many of the same topics, but the direction of the proposals put forward thus far is radically different. On virtually every agenda item, the Trump Administration has put forward nationalist proposals some in the Administration think favor U.S. interests. One of the craziest aspects of the U.S. proposals-- apart from many of them being non-starters for Canada and Mexico-- is that the same U.S. negotiators were taking entirely different positions two years ago in the Trans Pacific Partnership negotiations. In addition to the full slide presentation, I have penned things in this Blog about Trump's trade agenda, the NAFTA in particular, and specific issues such as investment, dispute settlement, and Canada's "progressive trade agenda" that I invite you to have a look at. 15. One area I have not written about explicitly in the past, but is worth considering is what may happen to NAFTA Chapter 16: Temporary Entry for Business Persons. One of the most innovative parts of the original NAFTA was the creation of a whole new Visa category-- the TN Visa-- for business professionals to more freely cross North America's borders and work in each other's countries for several years at a time. Indeed, no other American FTA since NAFTA has included what amounts to the liberalization of labor mobility.
Slow progress in the NAFTA2.0 negotiations and the radioactivity of many of the early U.S. proposals have nudged discussion of Chapter 16 to the margins. In short, Chapter 16 needed significant modernization. The list of professionals created in 1994 no longer reflects the North American labor market and some creative efforts to fit people into the existing categories were often deployed. A more flexible standard for a modern economy might be to make levels of educational attainment (a bachelor's degree or higher) the main criterion to qualify for a TN Visa. Unfortunately, I will be surprised if Chapter 16 survives intact at all. When cast against the poisonous immigration reform debate currently raging in the U.S., modernization and expansion of Chapter 16 strikes me as a non-starter for the Trump Administration. Indeed, elimination of the TN Visa from NAFTA2.0 is a distinct possibility with all of the implications for those whose legal status currently depends on them. 
16. The NAFTA2.0 negotiations are also complicated by electoral time-tables in the United States and Mexico. U.S. Congressional midterm elections are coming up in November. Any legislative work on Capitol Hill between now and November is likely going to be focused on immigration reform and infrastructure spending. Not many members of Congress are going to be excited about taking up NAFTA2.0 implementing legislation just before facing voters at the polls. There were very few politicians who wanted to deal with the NAFTA in its original form, never mind a revised version. As important to NAFTA2.0 are Mexican national elections scheduled for July 1, 2018. Mr. Trump's repeated sleights against Mexicans, starting with Trump's announcement he was running for president, have made any NAFTA2.0 a more complicated sell in Mexican politics than it otherwise would have been. It is too early to say whether Mexican elections will become a referendum on NAFTA2.0 and the country's relationship with the United States, but it could. One outcome of the lack of progress around Round 5 of NAFTA2.0 negotiations in Montreal a couple of weeks ago was talk that conclusion of an agreement could spill into 2019, partly to avoid making the terms of NAFTA2.0 part of either country's political season.
17. There is, of course, the prospect that Trump actually follows through on his campaign promise to scrap the "worst trade deal ever negotiated." There is every prospect that he will do so out of frustration that the negotiations are progressing too slowly or because he needs a public political "win" to show supporters. There's also the real prospect that Trump has never really been committed to having NAFTA2.0 see the light of day and has always intended to pull the plug. Indeed, were it not allegedly for Jared Kushner's admonition to Trudeau and Pena Nieto that they propose re-negotiation, Trump was already poised to pull the plug. My bet remains that Trump will withdraw. Indeed, some of the outlandish proposals put on the table by the U.S. side in this negotiation strongly suggest he's setting up the entire process for failure. In fact, I can already see the campaign-style rally at which he will accuse Canada and Mexico of "ripping us off."However, I can also see formal withdraw ushering in a period of considerable legal uncertainty about what trade rules actually prevail in North America. The best expert thinking about what ensues if Trump invokes Article 2205 of NAFTA and formally notifies of the U.S. intent to withdraw is that it will prompt a wave of lawsuits. Moreover, it's also unclear what role, if any, Congress would need to play following such a notification? Congress had to weigh in with legislation formally implementing the NAFTA back in 1994. In the aftermath of withdraw, would Congress need to weigh in with legislative reversals? We've yet to cross that bridge.
18. Canada has adopted much the same strategy for NAFTA2.0 that it put together in the years following the 9/11 terrorist attacks on the United States. Canada has embarked on a bit of an information and charm offensive in the U.S. aimed at raising awareness of the NAFTA and, more importantly, Canada, to the American economy. This has included significant outreach to stakeholders in U.S. states, many of whom count Canada as their top export market. One small tool in all of this has been the use of colorful maps graphically (and starkly) depicting the depth and breadth of bilateral relations. The Mexican Government has been engaged in similar outreach and awareness in the U.S. for many years, including campaigns targeted at the large expat community in the United States. 
There are reasons to think these efforts are small beer. The Colossus is often fairly self-absorbed and seemingly unconcerned with things outside its borders. As the statistical tables above suggest, the NAFTA2.0 talks are of existential concern for Canada and Mexico. Not so much for the United States. Indeed, except for trade geeks in the United States, the NAFTA2.0 negotiations are front page-worthy news for almost no one. Frankly, it's tough to get America's attention. But I give Canada and Mexico credit for doing what they can.
19. Finally, and related to points 11, 12, and 13, Canada and Mexico have been (and continue to be) active in pursuit of a diversified portfolio of trading partners. It is a stretch to think either country could rapidly wean themselves off of such heavy, and proximate, dependence on the U.S. market. The pull of the U.S. market-- regardless of the barriers-- has always been the strongest gravitational force on the Canadian and Mexican markets. That said, they are both doing what they can, including sticking it out alongside the remaining 11 members of the Trans Pacific Partnership. 20. So what to conclude? I am quite worried, and have been for a few years. There's a dearth of articulate advocates for maintaining an international order that Trump and his nationalist/populist sympathizers seem willing to have fall apart. It is admittedly an international order that proponents took for granted for far too long and did too little to reform when opportunities presented themselves. Far too much political and economic ground has been ceded to populists. Globalization, the integration of markets, and the commercial and democratic peace that have flowed from them in the postwar period are not givens. As evidence, just recall what the 20th Century's two World Wars destroyed. Indeed, by some measures, trade and financial flows did not return to comparable pre-World War I levels until the mid-1970s. Hope I'm worrying for nothing, but.....
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