The fragility of the North American Free Trade Agreement was made clear in a Washington meeting between U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau, despite attempts by both to appear friendly.
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In the meeting – which was full of smiles yet showed signs of strain – Trump made clear that he would be open to doing a bilateral trade deal with Canada but not Mexico if talks between the three countries over NAFTA fell apart.
Differences between the nations have appeared unbridgeable in the past three meetings, and the fourth round arrives amid major tensions between the three sides. Canada and Mexico appear unwilling to submit to the White House's demands, including the elimination of the dispute settlement mechanism, the shortening of the treaty to five years per renewal, and a change to products requiring a tariff.
Indeed, Trump's demands to renegotiate the world's largest free trade pact – or “upgrade” it, as Trudeau euphemistically termed the talks – may tank what he has called "the worst trade deal maybe ever signed anywhere."
Speaking about the possibility of making a trade pact with Canada if an agreement with Mexico regarding the accord proved impossible, Trump said: "Oh sure, absolutely. It's possible we won't be able to reach a deal with one or the other, but in the meantime, we'll make a deal with one."
Trump was speaking in his Oval Office beside Trudeau, who hopes to convince the U.S. leader of NAFTA's merits as a new round of renegotiations continued in nearby Arlington, Virginia.
That discussion was made more complicated by a dispute over airline subsidies. U.S. officials are seeking to impose retaliatory import duties on imports of certain Bombardier aircraft, claiming the Canadian government has unfairly subsidized them. Ottawa, in turn, is threatening to cancel an order for 18 Boeing FA-18 Super Hornet fighter jets.
Asked during his appearance with Trudeau whether NAFTA was dead, Trump said, "We'll see what happens."
"It's possible we won't be able to make a deal, and it's possible we will," he noted. "We'll see if we can do the kind of changes that we need ...And I mean, I think Justin understands this. If we can't make a deal, it'll be terminated and that'll be fine. They're gonna do well. We're gonna do well. But maybe that won't be necessary."
Trade experts say the NAFTA talks are set to stall, if not derail entirely, in the face of aggressive attempts by Trump to sharply increase content requirements for autos and auto parts in a manner favoring U.S. manufacturers.
Other contentious U.S. proposals opposed by Canada, Mexico and U.S. business interests include the five-year sunset provision, radical changes to NAFTA's dispute arbitration systems, changes to intellectual property provisions and new protections for U.S. seasonal produce growers.
U.S. Trade Representative Robert Lighthizer said the three nations have completed their negotiations on company competition policy, reaching agreement on a chapter that goes beyond previous U.S. trade deals to ensure "certain rights and transparency under each nation's competition laws."
Corporate advisors were largely being left in the dark as the fourth round of negotiations kicked off.
It was unclear why, but the office of the U.S. Trade Representative has not scheduled a briefing for those advisors, many of them lobbyists for large companies and trade associations, until Sunday. In prior rounds of NAFTA talks, the advisors received daily briefings.
The U.S. Chamber of Commerce on Tuesday accused Trump's administration of trying to sabotage the talks with "poison pill proposals", including demands for more favorable treatment for the U.S. side on car production, and a "sunset clause" to force regular negotiations.
“We’re going to fight like hell to protect the agreement,” U.S. Chamber CEO Thomas Donohue said in a speech at the U.S.-Mexico CEO Dialogue.
Donohue maintains that the Trump administration's approach to the talks, and to trade policies in general, will lead to reduced sales of U.S. products, increased outsourcing of goods from Asia, and – if the talks fail – “trade retaliation, higher tariffs, broken supply chains, and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts.”
Trudeau will travel next to Mexico City after his Washington trip to hold talks with the Mexican President Enrique Pena Nieto.