Trump rules out swift NAFTA withdrawal in favor of renegotiation

Mexico’s peso and Canada’s dollar jumped after the White House’s announcement. The peso was up 1.1 percent as of 11:22 p.m. in New York, recouping more than half of its 1.7 percent drop on Wednesday. The Canadian currency advanced 0.6 percent, halting a four-day decline.

Trump’s top advisers had been embroiled in a debate over how aggressively to proceed on reshaping U.S. participation in NAFTA, with hard-liners favoring a threatened withdrawal as soon as this week and others advocating for a more measured approach to reopening negotiations with Canada and Mexico.

Some of Trump’s advisers wanted a dramatic move before Trump’s 100th day in office on Saturday to fulfill a key campaign promise, while others said he could let the milestone pass and revisit the issue later through more formal procedures, according to two White House officials who spoke on condition of anonymity to discuss internal deliberations.

Dramatic step

The dispute played out in the media Wednesday, with several outlets saying Trump would take the most dramatic available step -- issuing an order declaring his intention to withdraw from the treaty. In this case, threatening to withdraw would have amounted to a formal step that started the process of giving Mexico and Canada six months notice that Trump intended to start negotiating.

Instead Trump is asking the two other nations to open talks on ways to make the deal more balanced from the U.S. perspective, which is allowed within the framework of the treaty. He spoke late Wednesday afternoon with his two counterparts, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto, according to the White House.

“It is my privilege to bring NAFTA up to date through renegotiation,” Trump said in the White House statement. “I believe that the end result will make all three countries stronger and better.”

Exactly who in the White House sparred over the decision wasn’t known but one of the most prominent anti-trade hard-liners is Senior Counselor to the President Steve Bannon, and Trump’s decision is sure to be viewed as a defeat for Bannon and his views. Bannon already is seen as being on the outs with Trump over reportedly sparring with Trump’s son-in-law Jared Kushner.

‘Bring pressure’

Talk that Trump would revisit NAFTA Wednesday had caused Mexico’s peso, the Canadian dollar and shares of companies that rely on cross-border trade to plunge.

“Even if he notifies Mexico and the U.S. of his intentions, that doesn’t mean he has to leave,” said Beatriz Leycegui, who was Mexico’s deputy minister on foreign trade between 2006 and 2011. “This is a strategy to bring pressure on Canada and Mexico.”

Trump must give Congress 90 days notice that he seeks to renegotiate the accord. Commerce Secretary Wilbur Ross said on Tuesday the administration is busy working with lawmakers to kick start renegotiation of the deal. He did say the U.S. was embarking on a more muscular strategy for trade-enforcement.

Trump has blamed NAFTA for hollowing out America’s manufacturing sector by relocating jobs to lower-cost Mexico -- which his administration initially said was the main target of changes he was seeking to the accord.

‘Disastrously bad’

Where Trump stands on NAFTA is hard to discern. After harsh rhetoric during the campaign, he has in recent weeks toned down his criticism, suggesting the relationship with Canada only needs tweaking. But this week he fueled trade tensions by imposing new duties on softwood lumber imports from Canada and vowing to defend U.S. dairy farmers against quotas imposed in Canada.

A number of Republicans are strong backers of free trade and have cautioned the administration against walking away from the free-trade deal.

“Scrapping NAFTA would be a disastrously bad idea,” Republican Senator Ben Sasse of Nebraska, who was a Trump critic during the campaign, said Wednesday in a statement. “It would hurt American families at the check-out, and it would cripple American producers in the field and the office.”

Republican Senator Jeff Flake of Arizona also blasted the idea on Twitter, writing, “Increasing trade barriers with CAN and MEX will result in lost jobs and higher consumer costs in #AZ. Strengthen #NAFTA, don’t abandon it.”

Without NAFTA -- which reduced or eliminated tariffs on most trade products after taking force in 1994 — commerce ties between the nations would need to be reset, raising the specter of more frequent trade disputes and higher tariffs.

U.S. trade with its NAFTA partners has more than tripled since the agreement took effect, rising to $1.1 trillion last year. Canada followed by Mexico ranked as the two biggest markets for U.S. exports, taking in a combined 34 percent of the total in 2016, according to a February paper published by the Congressional Research Service.

With assistance from Margaret Talev. To contact the reporters on this story: Jennifer Jacobs in Washington at jjacobs68@bloomberg.net; Andrew Mayeda in Washington at amayeda@bloomberg.net. To contact the editors responsible for this story: Craig Gordon at cgordon39@bloomberg.net.