Phipps: Likely Outcomes of NAFTA Renegotiations

October 2, 2017 03:04 PM

In the last two weeks, we've looked at some of the issues and problems facing NAFTA negotiators and the implications for farmers. This week, I'll wander out on a limb to examine what I think are the most likely outcomes.

First, many of the minute details of specific items of debate could be solved quickly by cutting and pasting from the work already completed for the Trans-Pacific Partnership – TPP. All three NAFTA partners reached agreement on many issues including the contentious Canadian Dairy program. The odds of taking this shortcut are low however, because of the Trump administration aversion to any accomplishment from the Obama era.

Second, the big issue of content is probably overblown. Unless punitive tariffs are set extremely high, supply chains for autos for example will simply pass the cost of new tariffs on to customers, rather than alter where parts are coming from. A few percentage points won't add any jobs.

Third, the Trump administration view of trade as zero-sum (I win, you lose), and its focus on quick results will handicap US negotiators, and make abandonment of the process more likely.

Fourth, tweets from the White House will confuse the process, and reinforce the global belief that any agreement could be repudiated overnight. Foreign trading partners are already creating alternate trading ties just in case. Farmers who are counting on the fact buyers "have to buy from us" should remember how much we liked that trading position for oil in the 80's and how we invested and worked to reduce that dependency.

Fifth, there is disagreement among legal experts whether the president has the authority to unilaterally withdraw without a Congressional vote. That outcome would initiate a long and complex legal process, during which NAFTA could possibly remain much as it is.

Finally, the nature of the whole NAFTA process, the withdrawal from TPP, and the confusion over the Paris climate accord will encourage foreign governments to seek more reliable trading partners and agreements. The US will be a commercial partner of last resort due to our unpredictability. This will help China, India, and Europe to set global trading standards and capture most of the growth.

In short, it is already too late to do no harm. Trade is built slowly on reputation and reliability, and dismantled rapidly with bluffs and threats. Which leads us to my current predictions, in rough order of probability: 

1. Outright failure – hello, 1993.

2. US withdrawal, court challenge and zombie NAFTA

3. Something that looks like TPP for three.

I'd welcome your predictions as well.

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Spell Check

Doug Carlson
Chappell, NE
11/28/2017 09:15 PM

  At this point in the Obama presidency the price of wheat was 3 times what it is today under this buffoon.

Charlotte, NC
10/10/2017 11:18 AM

  John, Why the heck aren't Farmers rallying in state capitols, and planning a rally in DC? If Trump withdraws from NAFTA, the immediate hit will be on Farmers. Recall, what persuaded Trump from withdrawing from NAFTA was Ag Sec Perdue...twice. The Farm Lobby needs to manifest his words into real, visible action, and get the Farmers to rally in DC in favor of NAFTA. If the President is forced to choose between the Farm Belt & Rust Belt, he will punt & hence not withdraw. As you know, this is a matter of life and death for the American Farmer, esp in the Corn Belt. A top-line reduction in revenue due to the loss of Canada and Mexico as export markets would return the region to Recession. Farmers need to get moving to DC now.

Boise, ID
10/3/2017 10:52 AM

  John , what has your track record been on articles starting with "I think" ?? You really do need to accept retirement gracefully.


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