On NAFTA and Mexico, Trump Faces a Balancing Act

By: Andrew Soergel

2/22/2017

President George W. Bush's former commerce secretary acknowledged Wednesday that the North American Free Trade Agreement "should be updated," but said that abandoning the deal entirely and antagonizing Mexico may amount to a temporary "tactical victory" that down the road would be remembered as a "strategic defeat."

Carlos Gutierrez, who opened a panel discussion Wednesday hosted by the Atlantic Council in Washington, avoided criticizing President Donald Trump's administration directly. But the onetime CEO of the Kellogg Co. warned that hard-line approaches to NAFTA and to America's broader relationship with Mexico have elicited "anxiety" and anti-U.S. sentiment from America's southern neighbor.

"I think what we need to understand – and I trust that our government here in the U.S. will understand this – we cannot humiliate a country to the bargaining table," Gutierrez said. "Maybe in business you can, because it's all about the bottom line. But you can't quantify national pride. You can't quantify national dignity, and that's what's at stake here. It's going to be extremely difficult for Mexico to do anything but take a combative response."

Panelists Wednesday generally expressed that Trump's rhetoric has angered those in Mexico. Rafael Fernandez de Castro, a professor at Syracuse University who served as an adviser to former Mexican President Felipe Calderon, said Trump has been "amazing" in creating "a perfect consensus in Mexico."

"From the far right to the far left, we all hate Mr. Trump," he said. "I have never seen this consensus in Mexico. Mexicans are rallying around it."

That could create problems for the U.S. during Mexico's 2018 presidential election, Gutierrez said, noting that the winner "could well be an anti-American populist, anti-imperialist, what have you."

Such an outcome could further complicate border and immigration discussions and generate tension with an immediate neighbor, leading to a "strategic issue" for the U.S. government. It also could complicate trade negotiations with Mexico, he said, should the U.S. decide to retool NAFTA rather than withdraw from it entirely – an option that most of Wednesday's panelists preferred to the alternative.

"It's been clear to us from a Canadian perspective that the president's quite serious criticisms of NAFTA have been very much aimed undoubtedly in the direction of Mexico," said Peter MacKay, who has served variously as Canada's minister of justice and attorney general, minister of national defense, and minister of foreign affairs over the course of the past decade.

MacKay said there is a clear "need to modernize this agreement" between his country, the U.S. and Mexico to factor in security, intellectual property rights and technological advancement, among other present-day issues that weren't nearly as prevalent in the mid-1990s when NAFTA came into force.

But he said that "from a quality-of-life perspective ... to make America great again, you have to make NAFTA great again."

"We have to get down to the hard facts, the tremendous advantages that can be laid out in very specific terms of this agreement," he said.

NAFTA, negotiated under President George H.W. Bush and ultimately implemented under President Bill Clinton, was designed to promote stronger trade between the three major North American countries. And the deal has been successful on some fronts for all three of the countries' exporters. Canada represented the largest buyer of American goods exports in the world last year, while Mexico was No. 2, according to the Census Bureau.

Combined, the two countries bought more than 34 percent of U.S. exports in 2016 – or nearly $500 billion in American-made goods.

Meanwhile, the U.S. maintained a $63 billion goods deficit with Mexico last year – its fourth-largest among its major trading partners and clocking in only behind America's shortfalls with China, Japan and Germany. The country's deficit with Canada came in at a little more than $11 billion.

Trump has pointed to such deficits – particularly America's trade gaps with Mexico and China – as signs that the U.S. is being taken advantage of. But considering the volume of American goods purchased by Canada and Mexico, Gutierrez said the U.S. risks damaging "the best thing we've got going" in terms of export markets by torpedoing NAFTA.

"Today, what the three countries have built is really quite breathtaking. NAFTA is worth more than $1 trillion. ... Supply chains have been integrated throughout the three countries," Gutierrez said. "Fourteen million U.S. jobs are tied to NAFTA – 14 million U.S. jobs. As we approach this, we need to keep that in mind."

NAFTA, however, has been targeted as a job destroyer as well as a job creator. A 2014 study from the left-leaning Economic Policy Institute found that NAFTA's implementation increased the U.S. trade deficit with Canada and Mexico by $160 billion between 1993 and 2013, in the process displacing more than 850,000 U.S. jobs. 

Other research has pointed to more muted results, instead suggesting that increases in productivity and technological advancement – and the rise of China's manufacturing sector – killed significantly more American jobs than NAFTA's implementation.

But by retaining aspects of NAFTA that work while scrapping those that have created conflict, Paula Stern – founder of trade advisory outfit The Stern Group – said Wednesday that Trump has the opportunity to "make lemonade out of lemons."

Trump could say to the American people, Stern posited, that "I have thought of the future. I'm not just thinking about voters who had some jobs in manufacturing and they didn't come back and productivity put them out of business."

The panelists' comments came as Secretary of State Rex Tillerson and Homeland Security Secretary John Kelly were scheduled to arrive in Mexico on Wednesday, amid a pronounced rough patch in the relationship between the U.S. and its southern neighbor during Trump's opening days.

Along with his repeated assertion that Mexico will pay for a proposed wall on the countries' shared border, Trump has signed executive orders related to the wall and immigration enforcement, and Mexican officials are said to be hostile to newly unveiled Homeland Security guidelines for implementing Trump's directives – specifically to guidance allowing non-Mexicans caught crossing the U.S. border illegally to be sent to Mexico pending further proceedings.

Last month, Mexican President Enrique Pena Nieto canceled a trip to meet with Trump, and in a recent call between Pena Nieto and Trump, the U.S. president reportedly mentioned deploying American troops to Mexico to handle crime there.

The White House later said the comments were meant as a lighthearted joke, and press secretary Sean Spicer on Wednesday described the relationship between the U.S. and Mexico as "phenomenal."

Regardless, MacKay said the trip by Tillerson and Kelly represents more than just an opportunity to smooth over rough edges. He said it's a chance to drill down specifically on issues where Mexico and the U.S. can find common ground, in order to facilitate more mutually agreeable trade and immigration standards over the long run.

"I think if they go back to the basics of security as being perhaps the primary concern that's been expressed by this administration, that may allow them to, I daresay, rethink some of the rhetoric around the wall," MacKay said. "I think this opening salvo in this visit tomorrow is a tremendous opportunity to recast what has perhaps been a wrong-footed approach and go back to the basics of security."