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Can a U.S. president sink NAFTA?

As Canadians who monitor American politics know, the Republican candidate Donald Trump has presented a confusing and threatening trade posture. He claims to favour free trade yet hates our trade deals and opposes the deal nearly all Canadian and American cattlemen see as critical to their future — the Trans-Pacific Partnership (TPP).

He’s also said he would withdraw from NAFTA unless Canada and Mexico agreed to renegotiate the treaty.

American politicians do sometimes exhibit amnesia and ignore their promises or, occasionally, claim to have changed their minds. As a political novice, Trump is more likely than most to adjust his approach on particular issues. But there might be a place for Canadian efforts in shaping Trump’s trade policy.

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Nevertheless it is worth investigating what power Trump, should he become the president, would have to alter trade agreements that all three North American countries count as economically vital.

While I’ve heard politicians claim the president can’t change or withdraw from trade agreements that Congress has ratified, Warren Maruyama doesn’t agree. And he should know. He served on U.S. Trade Representative (USTR) Clayton Yeutter’s staff in negotiating the U.S.-Canadian treaty that was a precursor treaty for NAFTA. Under President George W. Bush, he was on the White House policy staff when NAFTA was being negotiated and later was USTR general counsel under Trade Representative Susan Schwab. His current law portfolio involves free trade, WTO, TPP and TTIP for a major Washington, D.C. law firm.

In general, Maruyama says Congress has delegated broad authority to the president to withdraw from trade agreements and to impose higher tariffs for various reasons.

The law that gives the U.S. president the authority to negotiate free trade agreements is the Trade Act of 1974, and Section 125 of that act gives the president what is commonly referred to as “termination and withdrawal authority.” Section 125a requires the U.S. to have power to withdraw from every trade agreement after appropriate notice — usually six months. Section 125b allows the president to revoke previous tariff reductions and Section 125c gives the president authority to proclaim higher tariffs within certain limits.

The bottom line, says Maruyama is if Trump wants to terminate NAFTA, he can.

Section 301 of the 1974 Act gives the U.S. trade representative broad authority to respond to unfair trade practices or agreement violations, or an action that is “unreasonable or discriminatory and burdens or restricts U.S. commerce.” The president can direct the response. Which means the president could direct the USTR to impose a 45 per cent tariff on certain Chinese goods, Maruyama said.

Historically, the USTR has interpreted this section as authority to take trade disputes to the WTO. Canadian cattlemen know how agonizingly slow the WTO process is. By the time mCOOL was finally put to death, we all had to explain to younger cattlemen its sordid history. The USTR has been very reluctant to use this power to, for example, impose tariffs on certain goods from a certain country in order to stop bad behaviour.

There are free-trade proponents who, especially in the case of the Chinese, would love to see a president occasionally use this authority to make trade agreements work properly. President Ronald Reagan did.

If I were to speculate, optimistically, I would guess a President Trump might be more likely to use Section 301 authority than just nullify NAFTA. There are other additional authorities for the president, especially as related to national security or threats to the national economy.

Using Section 301 would have to be for extreme cases and with full knowledge of the disruptions any such move would invoke. Maruyama notes that anyone putting a 45 per cent duty on one or more Chinese goods, would have to be ready for retaliation, probably within 24 hours, against American goods like aircraft, soybeans or cars.

Mexico reacted in a measured but unmistakable fashion when the U.S. banned Mexican freight trucks from U.S. highways, illegal under NAFTA. As I recall, instead of U.S. packers shipping 1,000-lb. combo bins of bulk ground meat to Mexico, suddenly the rule became one-lb. chubs.

But those upset about China and other nations abusing trade rules might advise Trump about judicious use of such power to rebalance some trade relations. It would take a president with considerable determination. It’s not hard to imagine Trump using such power to rectify what he sees as countries taking unfair advantage of America.

Canadian cattlemen can rely on free-market agricultural groups, a long list of business groups and many voters to impress upon any president the absolute necessity of trade agreements, past and future. Part of Trump’s trade bombast is directed at attracting the votes of union labour members unhappy with the state of American manufacturing. His currency manipulation concerns have already been addressed in a customs enforcement law passed recently.

Because Trump has shown some inclination to modify positions as he learns more, we have a good chance to convince him to use a scalpel rather than a meat axe approach when it comes to trade. And Canadian cattlemen, supporting their organizations’ efforts to have the Canadian government maintain pressure on a Trump administration might help improve the future for all of us.

The Democrat candidate Hillary Clinton was a proponent of TPP as a part of the Obama administration when negotiations were wrapping up and Obama was pushing it. After completion, she said she didn’t feel it met her standards. So it seems she could go either way. While as president she would have the same powers of withdrawal or tariff changes, she has not expressed the desire to abrogate past treaties as Trump has.

About the author

Contributor

Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]

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