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How to Renegotiate NAFTA

WASHINGTON, DC – US President Donald Trump’s administration says that it is sticking with its campaign promise to renegotiate the North American Free Trade Agreement. Indeed, Trump has now reiterated his intention to invoke the procedures for renegotiating NAFTA soon (within “the next two weeks”), triggering a 90-day consultation period with the US Congress, before talks with Mexico and Canada commence. Assuming that happens – a very big if – it is worth asking how renegotiation could be done right.

Of course, Trump could simply decide to abandon his promise to renegotiate NAFTA, which may be unpopular with many Americans, but is considered by economists to have been beneficial. After all, he has dropped many other campaign pledges, including (fortunately) his oft-repeated vow to label China a currency manipulator “on day one” of his administration.

Another possibility would be for Trump to attempt to bully Mexico – the main target of his renegotiation plans – by, say, raising tariffs, in violation of NAFTA and World Trade Organization rules. In that case, it would be up to Mexico to respond. And Mexico does have some options. For example, it could raise tariffs to its old high “bound rates,” buying more corn from Brazil and Argentina and less from US farmers.

Moreover, trade is not the only area where Mexico could retaliate. It could permit Central American migrants to pass through Mexican territory to the US border, rather than impeding them, as it currently does. It could curtail cooperation with US law-enforcement authorities in areas like drug crime. Most worrying, the Mexican people could respond to US provocation by electing their own nationalist president, Andrés Manuel López Obrador, in 2018.