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Time running out for Trump's NAFTA talks

President Trump's divide-and-conquer strategy to renegotiate the North American Free Trade Agreement (NAFTA) is reaching a critical moment.

After three-way talks with Canada and Mexico fell apart in June, the U.S. has been conducting one-on-one negotiations with Mexico, leaving Canada on the sidelines. 

On Thursday, U.S. Trade Representative Robert Lighthizer said he hoped for a breakthrough in the coming days, even as Trump publicly talks tough by threatening to walk away from the table.

"We're either going to do a fair NAFTA for us or we're not going to do NAFTA at all," Trump said at a Cabinet meeting Thursday.

But the risky strategy of working out a deal with Mexico first and then forcing Canada to come on board faces a slew of hurdles and looming deadlines that experts warn will be difficult for the administration to overcome.

"The strategy looks very fragile to me, and doomed to fail in some sense," said Monica de Bolle, Senior Fellow at the Peterson Institute for International Economics. "It's hard to see how you can get an agreement when one of the three countries isn't in the talks."

The first major issue is timing. 

After four weeks of intensive bilateral negotiations, the U.S. only has until the end of the month to seal a deal with Mexico.

"It's likely this whole thing is going to be revisited, unless the Mexicans conjure up some sort of magic and get it all done in the next two weeks," said de Bolle.

The hard deadline is because of Mexican politics and the tricky requirements for approving new trade deals in the U.S.

Newly elected Mexican president Andrés Manuel López Obrador, a populist, is set to take office on Dec. 1. Outgoing President Enrique Peña Nieto, who is a more vocal advocate for free trade, is eager to wrap up the deal and get it signed into law before he leaves office.

For his part, López Obrador would be happy to keep his fingerprints off the deal altogether for now. Once he's in office, experts say, negotiators would have to go back to the drawing board.

But the trade promotion authority law governing the deal back in the U.S. requires the White House to notify Congress 90 days before he intends to sign a trade deal. That means that if Trump wants to sign a deal with Peña Nieto and not López Obrador, he has to notify Congress by Sept. 1 at the very latest.

Further complicating matters, the new Mexican Congress will be seated on Sept. 1, says de Bolle.

Looming over the Mexico-U.S. talks is the larger question of how Canada will respond if the two countries strike a deal without its input.

Vanessa Sciarra, a Vice President at the National Foreign Trade Council who worked on NAFTA under former President Bill Clinton, said the strategy was "highly unusual."

"It sounds like they're trying to make a deal with the Mexicans and then go to the Canadians and say 'you have to agree to this,' " she said.

Assuming Canada wanted to sign on to the deal between the U.S. and Mexico, it would only have 30 days from the time Congress was notified to work out any details. That's when the administration would have to present the final text of the agreement to Congress and the public.

But for Canada, there are few incentives to follow along after being snubbed from the talks.

"There's nothing here that's of interest to Canada. There's not a single proposal that would improve the deal from a Canadian perspective, or from a Mexican perspective," said Michael Hart, a professor emeritus of international affairs at Carleton University and a former trade negotiator for Canada. 

Experts say the only real incentive for Canada to play along is the looming threat of new auto tariffs from the United States.

The Commerce Department is expected to issue its report on auto imports as a national security threat under section 232 of the trade law in the coming weeks, which would allow Trump to follow through on threats to impose such new tariffs. That could deal a serious blow to Canada's auto industry.

But imposing steep auto tariffs on a close trade partner could have serious blowback for Trump, especially around November's midterm elections.

"It's the single thing that people spend significant money on outside of buying a home. Even a small number of people delaying the purchase of a car affects dealerships and has big ripples throughout the economy," said Sciarra.

Auto tariffs could also be a bridge too far for Congress, which has threatened to reassert control over section 232 tariffs as countries retaliate against U.S. trade actions.

Those issues could further tie up the talks with Mexico. In short, the Trump administration has just two weeks to work out questions of auto rules of origin and the issue of a sunset clause with Mexico.

Even if negotiators succeed there, the path of pushing through a new deal is fraught with obstacles. But all sides are aware there is little time left for a resolution.

"There are dangers everywhere," said Sciarra.

"I think they created a minefield for themselves. I think they miscalculated," she added. "They thought they'd be finished with NAFTA by May."

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