NAFTA, the North American Free Trade Agreement, provides the framework for virtually all trade among Canada, Mexico and the United States. But much has changed since NAFTA came into effect in 1994, and the three countries have been in discussions since last August over how to amend the treaty for the 21st Century. One proposal would eliminate NAFTA unless a new agreement is negotiated every five years, leading to more frequent talks among the participating nations.
Trade is an important factor driving development, so the future of NAFTA is crucial to commercial real estate. NAIOP recently hosted a members-only webinar with a panel of experts to help explain the future of trade in North America. Panelists included James Moore, Maryscott (Scotty) Greenwood and Colin Robertson.
Moore, a former member of Canada’s Parliament, began by saying that to understand NAFTA, you have to understand how Donald Trump became president. The U.S. economy is growing but he noted that not everyone is feeling positive. “You had stagnant wages for upwards of 20 years now for many regions of the United States,” Moore said, even in the middle class. In that environment, free trade isn’t always popular. “Two out of three Americans who voted in the 2016 primaries voted for candidates who were anti-NAFTA,” Moore explained.
He said Trump found that he could use NAFTA as a buzzword for the frustrations people felt about the economy. Now that he’s president, Moore said Trump is moving forward with a specific set of demands. As part of an updated NAFTA, the president wants to:
- End trade deficits.
- Repeal Chapter 19, which would mean settling disputes only in American courts.
- Impose a five-year sunset clause on NAFTA.
- Change rules of origin, to demand at least half of all auto parts be American-made.
- End supply management.
- Alter government procurement procedures, to lump Canada and Mexico together on a dollar-for-dollar basis.
For their parts, Mexico and Canada have taken mostly defensive postures. Moore concluded that Trump may not want to follow through with his threat to pull out of NAFTA either, but instead keep talking about using trade to the advantage of the U.S.
Another point the panel discussed is the fact that the discussion of “trade” now involves many other issues. “This is not simply about NAFTA anymore,” Greenwood, CEO of the Canadian American Business Council, said. For example, the Trump administration imposed tariffs on steel and aluminum imports in the interest of protecting national security. She says that made the issue real to actual consumers in all three countries.
But, Greenwood adds, she thinks NAFTA may be more important to Canadians than it is to Americans right now. She expressed her belief that many Americans seem to have moved on to other concerns. But in Canada, Greenwood contends, many ask, if not in the U.S., “Where are we going to sell products?” She says there are four paths forward for NAFTA. The countries could:
- Stay where they are right now, with fights over tariffs in various sectors.
- Watch as the Trump administration announces that it is tearing up NAFTA.
- Allow NAFTA to expire, but hammer out separate one-to-one deals among the three countries.
- Make international agreements across various sectors, such as automobiles, agriculture, and so forth.
In any event, Greenwood warns, time may be running out. Canadians are upset about the way Trump treated Prime Minister Trudeau at the G-8 conference in June, and Mexico just elected a new president. Those factors could make reaching a deal more difficult.
For his part, Robertson, vice president at the Canadian Global Affairs Institute, notes that NAFTA has generally worked. In the 1990s, President George H.W. Bush worried that “Mexico could become a huge failed state on America’s southern frontier” that would swamp the U.S. with economic refugees. NAFTA was originally conceived as a way to lift up Mexico. It worked, Robertson says. Mexico now has a middle class of 44 million people, and true democratic elections.
That led to the election this year of populist Andres Manuel Lopez Obrador as president. He previously ran opposing NAFTA, but doesn’t do so now. He just sent a letter (as president-elect) to Trump saying he’d like to move forward on NAFTA talks. Robertson said Mexico would prefer to maintain the trilateral agreement, rather than attempting to negotiate a deal with just the U.S.
The consensus opinion of the panel is that there won’t be much movement on NAFTA over the next few months. “There’s a hope that the dust will settle this fall after the U.S. midterm elections,” Greenwood said. But, she opined, it might not, because Trump enjoys being unpredictable.
In the meantime, “both Canada and Mexico are actively seeking trade diversification,” Robertson said. They’re trying to reach deals with the European Union and trade partners in Asia. That’s sure to make the discussion over trade more complicated, regardless of whether NAFTA is eventually renewed.
The Advantage Series is an exclusive member benefit, delivering expert insights into the latest research to help you make informed business decisions. This webinar was presented on July 24, 2018. NAIOP members can view the full archived webinar and presentation online. View and register for upcoming Advantage Series webinars online.