President Donald Trump could be poised to make a deal with Mexico on NAFTA even as he engages in a trade war with the rest of the world.
Mexican Economy Secretary Ildefonso Guajardo arrived in Washington on Wednesday — as he has every week for the past month — to hammer out some of the most contentious issues on NAFTA. U.S. and Mexican officials now say they could be on the verge of announcing a preliminary agreement on everything from complicated automotive rules to environmental regulations by the end of August.
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The apparent turnaround after months of stalemate is a surprise outcome of discussions reaching their year anniversary on Thursday. And while the two sides have yet to bring Canada, the third partner in NAFTA, into the latest round, the negotiators’ optimistic tone could signal that Trump may be ready to extinguish at least one trade conflagration before the midterms. That would placate Republicans who have been calling for a return to stability as the U.S. and China have been slapping tariffs on each other’s exports, roiling international markets and burdening American farmers.
“We’re settling in for the long haul with China, so we really need to release the pressure in our backyard,” said Dan Ujczo, an international trade lawyer who specializes in Canada-U.S. matters. “I think that’s a driving force for the U.S.’ desire to get a deal right now.”
To be sure, some major controversial issues remain unresolved, including the U.S. proposal to automatically terminate the pact after five years unless all three countries agree to renew it — an idea that Canada and Mexico have both rejected outright. And for the time being, at least, Canada still remains on the outside of the current talks.
But reaching even a bare-bones agreement on NAFTA before November’s elections would hand a concrete victory to Trump, who would likely point to the revamped pact as a symbol that his strong-arm tactics have worked, industry sources and experts closely following the talks say. It would also allow U.S. trade officials to clear a major task off their agenda and dedicate more time to areas where U.S. Trade Representative Robert Lighthizer in particular has wanted to focus, primarily trade issues with China.
At the same time, Mexican negotiators are also under renewed pressure to get a deal after the country elected a new leader who takes office in December and who badly wants NAFTA to be signed and off his plate before then. Mexico has pointed to Aug. 25 as the date by which it must wrap up at least a preliminary agreement for outgoing President Enrique Peña Nieto to be able to sign the deal before he leaves office.
Those domestic politics have put Guajardo in a tough position, as he tries to appease the incoming Mexican administration and quickly wrap up a deal while still standing up firmly against some U.S. proposals that Mexico has repeatedly derided as unworkable.
“They’re under a lot of pressure to just come up with anything, whatever it is,” one source close to the talks said, requesting anonymity to speak freely about internal deliberations. “What I’ve been hearing from other Mexican parties is that Ildefonso was sort of distraught and frazzled by the fact that he’s being asked to wrap it up, and that of course means making concessions that he wasn’t ready to make. It lowers his negotiating potential.”
Against that backdrop, sources close to the talks say Mexico appears to be poised to accept large swaths of a U.S. proposal involving the rules that govern North American-produced automobiles and dictate what percentage of each car must be sourced from within a NAFTA country to qualify for reduced duties under the agreement.
At the U.S.’ urging, Mexico looks likely to agree to an increase in the overall amount of North American-sourced content that must be included in each automobile, and will accept a requirement that a certain percentage of each car must be produced by workers earning at least $16 an hour, sources say. Mexico is also poised to accept mandates that a certain percentage of the steel, aluminum and plastic included in each vehicle is also sourced from a NAFTA country.
In exchange, the United States would be prepared to give up a controversial proposal that would have made it easier for American fruit and vegetable growers to make the case that Mexico is selling produce at unfairly low prices when crops are in season in a particular region, two sources with knowledge of the trade-off told POLITICO. The U.S. would also submit to Mexico’s demand to leave a chapter largely untouched that contains rules on disputes between governments, one of the sources said.
“Essentially, there is a deal,” one of the sources said.
At the same time, however, other major aspects of the renegotiation remain unfinished. Chief among them is the so-called sunset clause that the U.S. wants, which would end the pact after five years unless the parties opt to continue it. Several sources close to the talks say the sunset clause has hardly been discussed during the latest set of meetings between the U.S. and Mexico, and the two countries still remain on opposite sides.
And Canada will need to come to the table for a deal to be finalized. Officials from all three countries have sought to emphasize that the U.S.-Mexico engagement is not a sign of ill will toward Canada but is instead an attempt to work out bilateral issues before bringing Ottawa back into the fold.
But negotiators had expected that Washington and Mexico City would have made enough progress by now for Canadian Foreign Minister Chrystia Freeland to have joined the meetings in Washington. The more time that passes, the more likely it is that the strategy to put off a trilateral meeting could backfire, a source close to the talks said.
“Yes, there’s U.S.-Mexico momentum — that’s a positive message and great from Mexico’s point of view,” the source said. “But the longer it takes to bring in Canada, the less likely this is going to get done in the short term.”
Still, any incremental progress, or even the fact that the U.S. and Mexico are continuing to engage in good-faith negotiations and regular meetings, has offered a signal of some hope to U.S. farmers, consumers and industry groups who have been worn out by months of uncertainty and pummeled by retaliatory tariffs imposed over the past few months.
Retailers and business groups are reluctant to throw their support at this point behind a deal that is still unfinished, particularly when a number of proposals that some have termed poison pills remain on the table.
But at the same time, “I think what all of our members want, what the business industry at large wants, is certainty,” said Vanessa Sciarra, a former U.S. trade negotiator who now works as a vice president at the National Foreign Trade Council. “Anything that provides for greater clarity on trade relationships, particularly with Mexico and Canada … would be helpful.”
Adam Behsudi contributed to this report.