Businesses see Trump, not López Obrador, as greater threat to NAFTA

Businesses see Trump, not López Obrador, as greater threat to NAFTA
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Mexico's election of leftist candidate Andrés Manuel López Obrador as president may have portended more trade trouble between the two countries, but businesses see President TrumpDonald John TrumpWSJ: Trump ignored advice to confront Putin over indictments Trump hotel charging Sean Spicer ,000 as book party venue Bernie Sanders: Trump 'so tough' on child separations but not on Putin MORE as the greater threat on North American Free Trade Agreement (NAFTA).

López Obrador, known as AMLO, opposed NAFTA at the time it was signed. But like many on the Canadian left, he has since come around as Mexico’s economy opened and the conventional wisdom in the country saw the deal as central to its economic prospects.

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“In both countries, the center-left parties that originally opposed NAFTA in 1994 came out to defend it. Perhaps not with great enthusiasm, but they defend it,” said Joydeep Mukherji, who leads the Americas Sovereign Ratings section at S&P Global. “The bad news is that the overall fate of the NAFTA negotiations remains up in the air.”

Trump, for his part, has threatened to withdraw the United States from the agreement, which he routinely describes as one of the worst deals the U.S. has ever entered into.

It’s part of a nationalist trade agenda that has also included the imposition of tariffs on steel and aluminum imports. Trump used the Section 232 law to impose tariffs on those imports, claiming they threatened national security. He’s considering a similar argument to slap steep import taxes on automobiles. 

While businesses worried about some of López Obrador’s economic plans, his election has prompted muted concern over NAFTA. 

“AMLO didn’t run on a NAFTA-friendly platform, but NAFTA was never part of the campaign, and he’s on several occasions expressed support for NAFTA and its renegotiation,” said Monica DeBolle, senior fellow at the Peterson Institute for International Economics.

López Obrador he has raised concerns about how a new agreement could affect Mexican agriculture, but that particular issue has thus far not played a central part in negotiations.

Beyond that, López Obrador’s cabinet picks, who will be responsible for much of the negotiation, signal an interest in a successful renegotiating of NAFTA.

“On the NAFTA, negotiations, they would not be the ones to walk away from the table,” said Richard Miles, director of the U.S.-Mexico Futures Initiative at the Center for Strategic International Studies

Instead, all eyes remain on Trump.

“We’re in the midst of this tit-for-tat tariff war, and that could go either way,” Miles said.

Trump has sought to use his threats on trade as a cudgel in the NAFTA talks.

He hoped that the tariffs on steel and aluminum imports from Canada and Mexico could be used as leverage in the talks and is thinking of potential auto tariffs in much the same way. So far, both countries have moved to retaliate against the United States. 

Trade groups and conservative pressure groups have vocally attacked Trump over the tariffs. U.S. Chamber of Commerce President Tom Donohue said it was “not the right approach,” while Koch-backed groups embarked on a multimillion-dollar campaign on what they called “misguided policy” that would have “unintended consequences.”

The NAFTA talks have been stalled, making it all but impossible for them to conclude before the midterm elections in November — when Trump faces the real danger that Republicans could lose the House majority.

Several major sticking points have slowed talks, including disagreements about whether to include a sunset clause, rules of origin on products such as automobiles and the use of an international dispute settlement mechanism when problems arise.

Trump’s threat to impose new auto tariffs has the potential to destabilize new talks. Adding a new 25 percent import tax on Mexican-built cars could explode the discussions on rules of origin, which lay out how much of a car can be built in Mexico or Canada to qualify for sale in the U.S. under NAFTA. Trump directed the Commerce Department to look into the issue and could act as soon as it issues a report, potentially as early as September.

Another potentially important factor is López Obrador and Trump’s personal chemistry.

“An awful lot of it depends on the personal relationship that develops between López Obrador and Trump,” Miles said. 

DeBolle said López Obrador’s outsize personality could be an asset or a liability in dealing with Trump. 

“It could cut both ways. He’s a lot more outspoken than Peña Nieto, so tensions on those sticking points could escalate. If the U.S. says something about Mexico, You’ll get a much more in your face response than you ever would have gotten under Peña Nieto,” she said, referring to Mexico’s current president, Enrique Peña Nieto.

On the other hand, the two could find each other’s style relatable.

“Their personalities kind of match that way, and it may be that Trump finds it easier to work with a person like AMLO than he did with Peña Nieto, because they’re very similar characters.”

On that front, initial signs are positive. Trump spent a half-hour on the phone with López Obrador on Monday and told reporters afterward that the conversation went well.

“I think the relationship will be a very good one,” he said. 

S&P Global predicted that, despite hiccups, a new deal would eventually get signed. Even if negotiations to renew NAFTA fall apart, however, scrapping the trade arrangement altogether remains a distant prospect. 

That would require Trump to formally withdraw from the treaty, plus congressional action to undo NAFTA-related legislation.